<Page>

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                                    FORM 10-K

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

         FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001

( )      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE OF 1934

         For the transition period from _______ to _______

Commission file number    0-24012
                      ---------------

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

                  NEVADA                               13-3087510
         ---------------------------          --------------------------
         (State of incorporation)          (IRS Employer Identification No.)

325 DUFFY AVENUE, HICKSVILLE, NEW YORK                    11801
--------------------------------------                 ----------
 (Address of principal executive offices)              (Zip Code)

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

Securities registered pursuant to Section 12 (b) of the Exchange Act:   NONE

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

                                 TITLE OF CLASS
                          -----------------------------
                          Common Stock, $.001 par value

Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
                                          ---       ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will be not contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  X
           ---

On December 31, 2001, 4,948,392 shares of the Registrant's common stock, $.001
par value per share, were outstanding. The aggregate market value of the voting
stock held by non-affiliates of the registrant, based on the last sale price on
December 31, 2001 is approximately $2,981,983.

DOCUMENTS INCORPORATED BY REFERENCE:  NONE


<Page>


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
                  transmission and control applications in industrial and
                  commercial instruments and equipment. The Company has the
                  capability of producing very 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 technical support and customer service.

                  The Company's major product groups include precision motion
                  control and servo assemblies, gears and gear products, and
                  other precision machined 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 on 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 is useful for multiple applications in many
                  industries, resulting in 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 capital goods 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; mechanical seals and glands; scientific
                  instrumentation; and optics.


                                       1
<Page>

                  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 adopted a strategy that is designed to
                  lever capabilities represented by the catalog and its range of
                  standard products to build proprietary relationships with
                  companies requiring broader or more technical manufacturing
                  support. In management's estimation, companies outsourcing
                  precision mechanical instrument assemblies and related
                  components are generally not well served because success in
                  manufacturing such products often requires sophisticated
                  integration of mechanical engineering, assembly and
                  component manufacturing capabilities. 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 structured the Company to
                  provide advanced 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). While that industry has shown, over the long
                  term, a compound annual growth rate of approximately 15%,
                  it is prone to wide swings in volume on a cyclical basis.
                  Such cyclical fluctuation has an indirect but material effect
                  on the Company's shipping volume, as has been evident from
                  the severe downturns in that industry seen in 1997-1998,
                  1998-1999, and again in 2001. Management estimates that
                  customers serving, directly or indirectly, the
                  semiconductor equipment markets have accounted for somewhat
                  over 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


                                       2
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                  regions served. Allied Devices relies principally on
                  independent multi-line manufacturers' representatives to gain
                  national coverage, altogether fielding some 75 sales people 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. Management
                  periodically adds or drops products offered through the
                  catalog based on its judgment of appeal to customers or actual
                  history of sales. 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 five years ended
                  September 30th.

                           2001            $13,989,000
                           2000            $15,892,000
                           1999            $12,644,000
                           1998            $14,507,000
                           1997            $13,604,000

                  The decreases in revenues for 1997, 1999 and 2001 were the
                  result of successive cyclical downturns in the semiconductor
                  equipment sector of the U.S. economy. Historically, such
                  declines in sales have been abnormal for the Company because
                  of the diversified nature of its customer mix. In recent
                  years, however, 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. In November, 2000, shrinking demand for
                  semiconductors coincided with significant additions to
                  industry capacity to prompt a deep and sudden decline in
                  demand for chip-making and testing equipment, which downturn
                  has continued unabated into 2002. The


                                       3
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                  Company has undertaken to diversify its business with
                  additional products and more intensive marketing in industries
                  unrelated to the semiconductor equipment sector.

                  CATALOG INDUSTRY COMPETITION

                  The Company's Catalog Operations compete principally with W.M.
                  Berg Co., a subsidiary of Rexnord/BTR Ltd.; PIC Design; 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 improve its market position.

                  MANUFACTURING SERVICES OPERATIONS

                  Central to management's strategy for achieving above average
                  growth is Manufacturing Services Operations. That strategy
                  includes the following two elements: (a) the majority of
                  products sold through the catalog will be manufactured
                  in-house in the belief that such vertical integration ensures
                  superior quality, timely deliveries, control of priorities,
                  and cost efficiencies; and (b) the Company will seek to
                  develop 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 these elements of the Company's strategy, the Company has
                  added significantly (beginning in 1998) to its manufacturing
                  sophistication and capacity through (1) acquisition of two
                  state-of-the-art machine shop facilities, (2) complementary
                  additions of new and highly productive capital equipment, and
                  (3) institution of various late stage manufacturing techniques
                  (such as cellular manufacturing). In seeking to prepare for
                  continued growth and improve its manufacturing responsiveness
                  and flexibility, the Company, during fiscal 2000, consolidated
                  several smaller locations on Long Island into one new
                  facility, and, during 2001, consolidated three smaller
                  locations in Maine into one new and larger facility. Allied
                  now has three manufacturing divisions, each with a particular
                  focus and core competencies. In addition to the product each
                  manufacturing operation produces in support of Catalog
                  Operations, it markets and sells its capabilities direct to
                  key customer accounts.

                  The following operations comprise Manufacturing Services:

                                       4
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                 ---------------------------------------------------------------
                 Allied Devices Corp.             Includes (1) a sophisticated
                 Hicksville, New York             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.             A general machine shop with
                 Joplin, Missouri                 diversified CNC and
                                                  conventional capabilities,
                                                  producing the Kay Pneumatics
                                                  product line and
                                                  manufacturing components for
                                                  an established customer base
                                                  in several industries.

                 ---------------------------------------------------------------
                 APPI, Inc.                       A state-of-the-art CNC
                 (Atlantic Precision Products)    machining operation
                 Sanford, Maine                   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.

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


                  The Manufacturing Services operation in Hicksville, NY,
                  produces components sold both through Catalog Operations to
                  customers 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 under 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).

                  Approximate revenues from Manufacturing Services were as
                  follows for the five years ended September 30th:

                           2001                        $15,669,000
                           2000                        $16,389,000
                           1999*                       $10,183,000
                           1998                        $ 3,841,000
                           1997                        $ 2,612,000

                                       5
<Page>

                  * The large increase in fiscal 1999 was attributable
                  principally to the acquisition of Atlantic Precision Products
                  in July 1998.

                  The Company does not report results or allocate resources
                  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 substantial increases in volume
                  without significant additions to current production
                  facilities. Operations are now running on a reduced single
                  shift, representing an estimated 40% of capacity, giving the
                  Company substantial flexibility to respond to increases in
                  sales volume. Management does not anticipate having
                  difficulty in filling its needs for skilled and semi-skilled
                  production staff in responding to growth in demand and
                  shipments. While it is a policy of management, on a
                  continuous basis, to examine its manufacturing methods,
                  equipment and tooling, and seek ways to improve the quality
                  and responsiveness of its capacity while minimizing the
                  labor and skill content (and related cost) in its product,
                  no capital expenditures related to this policy are planned
                  for 2002.

                  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 set
                  forth policies and procedures used throughout the Company. 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 May 1999 and for its Hicksville operation in August, 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, and
                  anticipates conformance and certification to the revised
                  standards before the deadline for re-certification in 2003.
                  In management's opinion, loss of qualification under ISO-9002
                  would not have a material impact on the Company's ability to
                  do business; however, in management's opinion, such
                  qualification does provide an indication to customers and
                  potential customers of the degree of

                                       6
<Page>

                  diligence that the Company exercises in adhering rigorously to
                  high standards in pursuit of consistent quality and
                  manufacturing excellence.

                  EXPANSION PLANS

                  Management has been 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 to support the expansion plans as they are being
                  implemented. The downturn in fiscal 2001 has prompted
                  management to suspend most elements of such plans until
                  operating conditions are more favorable.

                  MARKETING PROGRAMS

                  The Company has developed a program designed 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 gain 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, of the usefulness of standardized components
                  in general, and of the value of integrated engineering,
                  assembly and manufacturing services. 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 2002, management expects to go
                  live with a customer-interactive system (currently in
                  beta-site testing) 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 these plans, to the extent
                  implemented, have resulted in improved market share for the
                  Company.

                  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 certain
                  forms of consolidation.


                                       7
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                  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, and one in fiscal
                  2001. No additional acquisition activity is planned before
                  market and economic conditions improve.

                  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 product line has resulted in general stability of
                  demand in its markets (exclusive of normal business cycles)
                  and ready availability of raw materials at stable prices. The
                  inventories carried by the Company, both raw materials and
                  finished goods, thus bear a relatively low risk of
                  technological obsolescence. Management views inventory risk as
                  a function primarily of pricing policy and product promotion:
                  should pricing be high relative to market, or should
                  management remove products from the standard catalog
                  offering, then related inventory would likely be slow-moving
                  or surplus but may ordinarily be liquidated. Management
                  periodically reviews the range of products offered in the
                  catalog and, based on its judgment of what customers using
                  the catalog will find pertinent and useful, adds and drops
                  products to tailor the offering. No material portion of the
                  Company's business is subject to renegotiation of profits or
                  termination of contracts at the election of the United
                  States government or its prime contractors. Procurement of
                  patents is not material to the Company's present marketing
                  program.

                  REGULATION

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

                  EMPLOYEES

                  The Company currently employs 50 salaried and 129 hourly
                  personnel. Wage rates and benefits are competitive in the
                  labor markets from which the Company draws. The Company has
                  been able to provide for all of its labor requirements in
                  fiscal 2001. 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.

                                       8
<Page>

                  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 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 9.9%, and expiration dates
                  range from 2003 to 2006. The obligations due under capital
                  leases were $7,933,000 as of September 30, 2001.

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
                  Biddeford, ME, Windham, ME and Raymond, ME into one building
                  in Sanford, ME during fiscal year 2001. The lease for the new
                  Sanford, ME facility was executed in April 2001, for a period
                  of ten years. The facility in Windham has been re-leased, with
                  the landlord releasing the Company from its obligations under
                  the lease. A portion of the space at Raymond has been sub-let,
                  and management is seeking to sub-let or re-lease the remaining
                  Raymond space and the entire Biddeford facility.

<Table>
<Caption>

      Location             Square Feet       Lease Expiration            Principal Activities
----------------------    --------------    --------------------     -----------------------------
<S>                              <C>                <C>              <C>
Hicksville, NY                   60,000              June, 2010      Catalog Operations and
                                                                     Manufacturing Services

Sanford, ME                      57,600             April, 2011      CNC Machine Shop

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

ITEM 3   -        LEGAL PROCEEDINGS

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

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

                  Not applicable.


                                       9
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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 the
                  National Association of Securities Dealers Automated SmallCap
                  Market ("NASDAQ") as of November 17, 1994. Trading in the
                  Company's stock has been active and regular since then. A
                  total of 2,697 trades representing 1,806,778 shares (as
                  reported by NASDAQ in their routine statistical summaries)
                  were completed during fiscal 2001. As of December 31, 2001,
                  the Company had 423 holders of record of its common stock. The
                  Company has five listed market makers, and the trading ranges
                  by quarter for fiscal 2001 and 2000 were as follows:

<Table>
<Caption>

                                              FISCAL 2001               FISCAL 2000
                                           -----------------       ------------------
                                             High     Low           High       Low
<S>                                         <C>      <C>           <C>         <C>
                           First Quarter    $4.000   $1.563        $1.688      $1.031
                           Second Quarter   $3.688   $2.281        $3.844      $1.469
                           Third Quarter    $3.350   $1.800        $3.188      $2.031
                           Fourth Quarter   $2.250   $0.760        $4.625      $2.875
</Table>


ITEM 6   -        SELECTED FINANCIAL DATA

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-K.

                                       10
<Page>

<Table>
<Caption>

                                                 As of and for the Year Ended September 30,
                                -------------------------------------------------------------------------
                                     2001           2000           1999            1998           1997
                                     ----           ----           ----            ----           ----
STATEMENT OF OPERATIONS DATA:
<S>                             <C>             <C>            <C>            <C>            <C>
Net sales                       $ 29,658,263    $ 32,281,423   $ 22,827,298   $ 18,448,483   $ 16,215,931

Gross Profit                    $  4,958,005    $ 11,105,822   $  7,795,477   $  6,284,881   $  5,917,165

Selling, general and
administrative expenses         $  8,031,342    $  7,507,908   $  6,013,032   $  4,282,634   $  4,022,326

Interest expense, net           $  1,706,338    $  1,220,592   $  1,007,807   $    387,574   $    203,956

Net (loss) income               $ (3,656,111)   $  1,474,696   $    494,994   $  1,030,673   $  1,061,883
Earnings (loss) per share:
   Basic                        $       (.74)            .30            .10            .22            .24
   Diluted                      $       (.74)            .27            .10            .22            .22
Weighted average number of
shares outstanding:
   Basic                           4,935,965       4,847,592      4,913,524      4,699,526      4,472,141
   Diluted                         4,935,965       5,537,748      4,948,546      4,763,404      4,751,739

BALANCE SHEET DATA:
Total assets                    $ 34,300,780    $ 31,563,773   $ 24,858,026   $ 22,973,619   $ 10,976,983

Long-term debt                  $  7,584,337    $ 11,257,491   $ 10,931,435   $ 11,031,687   $  2,084,239

Stockholders' equity            $  7,196,859    $ 10,956,620   $  9,481,924   $  9,116,101   $  7,025,928
</Table>


ITEM 7   -        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 2001, COMPARED WITH YEAR ENDED
                  SEPTEMBER 30, 2000

                  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


                                       11
<Page>

                  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.

                  During fiscal 2001, the Company dealt with a continuous series
                  of challenges that arose from events generally beyond
                  management's control. As each challenge materialized,
                  management formulated and carried out plans of action to
                  address the situation, all the while consistently adhering to
                  the Company's core strategies. The outcome has provided for
                  the continued operation of the business, although the
                  financial condition of the Company has deteriorated
                  materially.

                  Management's strategy has included positioning Allied Devices
                  to supply critical mechanical and electro-mechanical
                  components and sub-assemblies to original equipment
                  manufacturers (OEMs) that are leaders or prospective leaders
                  in their industries. Such critical components and
                  sub-assemblies include devices with engineering value added,
                  made from exotic or tough materials, with features that are
                  beyond the capability of many machining businesses to produce
                  with reliable, consistent quality. The Company has dedicated
                  substantial effort over the past several years to developing
                  capabilities that are scarce in the markets in which it
                  competes, and management believes that Allied Devices,
                  Atlantic Precision Products, and Kay Pneumatics are respected
                  for their world class performance in manufacturing such
                  devices.

                  Through the most recent 15 years of its history, management
                  has sought to maintain a diverse mix of companies in its
                  customers, a strategy that has served to mitigate the impact
                  of downturns in particular sectors or industries by relying on
                  continued strength in other sectors. As it happened in 2001,
                  all of the industries that the Company serves experienced
                  significant slow-downs, with the impact on the Company
                  beginning mid-way through the second quarter of the Company's
                  fiscal year (February, 2001) and continuing on into fiscal
                  2002. Rapid deterioration in the economic climate,
                  particularly in the manufacturing sector, of the U.S. caused a
                  marked downturn in capital spending, resulting in dramatic
                  slow-downs for Allied's customers, which in turn resulted in a
                  severe contraction in sales for the Company. Events attendant
                  to the tragedies of September 11, 2001, exacerbated a
                  situation already weak from continued high levels of
                  uncertainty and a general environment averse to risk-taking
                  and capital spending in general. September, 2001, the final
                  month of the Company's fiscal year, contributed the lowest
                  level of monthly sales volume the Company has experienced in
                  many years: virtually all customers cancelled orders or
                  postponed shipments as defensive measures until a greater
                  measure of control and predictability emerged in the
                  business and political climate.

                  Of sales to the various industries represented by Allied's
                  customers, those to semiconductor equipment OEMs had developed
                  into the largest share of the Company's revenue mix,
                  representing an estimated 52% of sales. While there is
                  material variation from one analyst to another, most
                  industry experts report a contraction of 60% or more in that
                  industry, with some potential for further deterioration and
                  virtually


                                       12
<Page>

                  no prospect of improvement before the third quarter of
                  calendar 2002. When this cyclical industry is in its downturn
                  phase, its OEMs typically place no new business with their
                  suppliers while they consume inventory, generally a phase of
                  six months or more. That has been the Company's experience
                  during this downturn; effectively no shipments have been made
                  to companies in this sector since late March, 2001. Other
                  industries important to the Company's revenue stream include
                  aerospace instrumentation and controls, mass flow metering and
                  control devices, medical diagnostics, scientific
                  instrumentation, robotics, oil-field equipment and
                  telecommunications. Management's research indicates that all
                  of these sectors also experienced material declines in
                  activity during calendar year 2001.

                  Net sales for fiscal 2001 were $29,658,000 as compared to
                  $32,281,000 in fiscal 2000. This decrease, year-on-year, of
                  8.1% was the result of an exceptionally strong start to the
                  year followed by a very weak second half, as shown in the
                  following table:

<Table>
<Caption>

                 ------------- ----------------- ---------------- ------------------------ -----------------
                                                                                            % CHANGE FROM
                  QUARTER OF                                                                 SAME PERIOD
                 FISCAL 2001   CALENDAR PERIOD    PERIOD SALES      ANNUALIZED REVENUES       PRIOR YEAR
                 ------------- ----------------- ---------------- ------------------------ -----------------
<S>                            <C>                 <C>                  <C>                     <C>
                      1        Oct-Dec 2000        $9,597,000           $38,388,000             +43.4%
                      2        Jan-Mar 2001        $9,508,000           $38,032,000             +22.9%
                      3        Apr-Jun 2001        $5,900,000           $23,600,000             -28.6%
                      4        Jul-Sep 2001        $4,654,000           $18,616,000             -51.5%
                 ------------- ----------------- ---------------- ------------------------ -----------------
</Table>

                  Management believes this contraction to have been the most
                  pronounced (sudden and deep) to affect the Company's shipments
                  in over 20 years. To the best of management's knowledge, the
                  Company has not lost any significant customers during this
                  period. Indeed, the Company has endeavored to take advantage
                  of this slow period to gain attention and market share from
                  accounts that were previously difficult to penetrate; the
                  sales force has been deployed aggressively to reach decision
                  makers who were too busy "keeping up" in boom times to
                  consider the merits of changing vendors. In all its
                  operations, the Company remains dedicated to providing top
                  quality and superior service to all of its customers,
                  regardless of sector. Management expects that, as a result of
                  the value package it markets and delivers to its customers,
                  the Company will enjoy success in attracting sales through
                  consistent application and continuous re-evaluation of its
                  marketing strategy, in the belief that the Company will
                  realize a steady improvement in market share and quality of
                  customer relationships. While current sales levels are
                  depressed, management believes that new accounts gained during
                  the slowdown will yield a growth rate well above industry
                  average once recovery begins in the U.S. manufacturing sector.
                  The principal stimulants to such growth will be, in
                  management's estimation, the following: (1) a continued focus
                  on selling product requiring sophisticated engineering
                  content; (2) a series of programs of continuous improvement,
                  including maintaining its ISO-9002 status, 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;

                                       13
<Page>

                  and (4) a continued effort to diversify into new or
                  under-developed industries, thereby reducing dependence on
                  volatile technology-related sectors of the economy.

                  From an operating perspective, management has reacted to this
                  downturn in stages, tailoring spending and staffing to
                  anticipated sales volume. Strategically, the Company's goal
                  has been to cut the minimum amount necessary to survive the
                  current downturn so that valuable resources marshaled or
                  developed to support long term growth will not be sacrificed
                  to short term exigencies. Thus, by the end of the fiscal year,
                  a series of layoffs and cost-cutting measures had been
                  completed, effectively curtailing discretionary spending,
                  cutting operating hours, laying off a substantial number of
                  people, and cutting administrative pay rates. The benefits of
                  such cost-cutting measures, as a general rule, become evident
                  in the Company's operating accounts on a delayed basis,
                  principally as a result of satisfying on-going obligations
                  before spending actually stops. Management has created a
                  restructuring reserve to account for the expenses attendant to
                  reducing the size of the business. In addition to such
                  operating considerations, management has reviewed inventory
                  valuations in light of current business conditions and
                  has written off potentially unsaleable materials. In the
                  interest of continuing to improve the Company's market
                  position during the current softness, management completed
                  certain in-process expansion projects rather than to "throw
                  away" investment spending already completed. In particular,
                  the Company moved its APPI subsidiary into a new and larger
                  facility in Sanford, Maine, consolidating three locations in
                  Maine into one plant. There were certain impacts on the
                  Company's operating statements related to this move:

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

                  o        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 three months.

                  o        The Company has been seeking to dispose of its lease
                           obligations at the three facilities vacated through
                           arranging for new tenants or finding sub-tenants. As
                           of fiscal year-end, a new tenant had been secured
                           for one facility and the Company's lease had been
                           forgiven by the landlord; 60% of the space in a
                           second facility was sub-leased in December, 2001;
                           and the third remains vacant. The occupancy expense
                           in Maine will continue to be high until the space
                           remaining vacant is sub-leased.

                  The Company's gross margin was 16.72% of net sales in fiscal
                  2001, as compared to 34.40% in fiscal 2000. Amongst others,
                  the following three factors accounted for the bulk of this
                  decline:

                           1.       the time required to effect cost cuts
                                    following the sudden and steep decline in
                                    sales volume resulted in higher factory
                                    staffing costs as a percentage of net sales
                                    than normal payroll expense;



                                       14
<Page>

                           2.       fixed expenses of operation, most notably
                                    occupancy costs and depreciation, do not
                                    decrease as a function of lower sales
                                    volume, levering the impact on operating
                                    margins; and

                           3.       in light of current business conditions,
                                    management wrote off approximately $2.7
                                    million of inventory.

                  The following factors had the indicated impact on the cost of
                  goods sold: (1) net materials expense (exclusive of inventory
                  write-offs) decreased as a percentage of sales, increasing
                  gross margins by 4.00%, as the Company brought more
                  manufacturing in-house to fill idle capacity, thereby
                  purchasing less from the outside; (2) management wrote off
                  approximately $2.7 million of inventory and decreased its LIFO
                  reserve, decreasing gross margins by 9.17%; (3) payroll costs
                  increased as a percentage of sales, thereby lowering the gross
                  profit percentage by 7.27%, as a by-product of the sudden and
                  steep slowdown and certain temporary inefficiencies related to
                  consolidating facilities in Maine; (4) the Company shipped a
                  lower volume of product on relatively stable costs of factory
                  overhead, decreasing gross margins by 3.35%; and (5)
                  depreciation (a non-cash expense) increased as the Company
                  added equipment to handle the strong growth experienced in the
                  first two quarters of the fiscal year, and the larger
                  depreciation expense was defrayed against lower shipments,
                  reducing gross margins by 1.89%. Management believes that
                  margins will be restored to customary levels as the Company
                  grows out of the downturn.

                  The Company did not increase prices materially in fiscal 2001.

                  Selling, general, administrative and restructuring expenses as
                  a percentage of net sales were 30.16% in fiscal 2001, as
                  compared to 23.26% in fiscal 2000. The following factors
                  account for this change: (1) selling and shipping expenses and
                  commissions decreased approximately $50,000 during fiscal 2001
                  but when expressed as a percentage of net sales increased by
                  0.25%; (2) administrative payroll, benefits, and related
                  expenses increased as a percentage of net sales by 1.60%,
                  principally because reductions in staffing did not happen as
                  rapidly as the decline in sales volume; (3) other
                  administrative expenses (exclusive of depreciation and
                  amortization) increased as a percentage of net sales by
                  approximately 1.00%; (4) depreciation and amortization
                  expenses (non-cash expenses) increased as a percentage of net
                  sales by 0.97%; and (5) non-recurring expenses (restructuring
                  and moving charges) increased SG&A expense as a percentage
                  of net sales by 3.08%. One-time costs related to moving and
                  downsizing/restructuring in fiscal 2001 were approximately
                  $915,000.

                  Interest expense increased by $486,000 in fiscal 2001 as a
                  function of: (1) higher borrowings incurred to finance new
                  equipment acquired in fiscal 2001; (2) borrowings incurred to
                  finance restructuring and moving; (3) higher interest rates
                  during the first half of the fiscal year, and (4) recognition
                  of the fair value (cost) of an interest rate collar.

                  As a result of a tax loss carryback, an income tax refund of
                  $606,000 has been accrued for fiscal 2001. (Benefit)
                  provision for income taxes in fiscal 2001 and 2000 was 35.7%
                  and 36.1% of


                                       15
<Page>

                  pre-tax income. See the notes to the consolidated financial
                  statements for reconciliation to the federal statutory rate.

RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 2000, COMPARED WITH YEAR ENDED
                  SEPTEMBER 30, 1999

                  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:

                           o        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,


                                       16
<Page>

                                    physically moving, and starting up in a new
                                    location; and the additional project
                                    staffing retained for organizing the move.

                           o        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.

                           o        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.

                           o        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 locations into one. As
                                    of year-end, many of the methods for
                                    producing product had been revised, with
                                    improvements in standard costs designed into
                                    the new methods. It is management's
                                    expectation that the fiscal benefit of such
                                    changes will begin to be realized during
                                    fiscal 2001.

                           o        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


                                       17
<Page>

                  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 costs 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.

LIQUIDITY AND CAPITAL RESOURCES

                  The Company's financial condition weakened materially during
                  fiscal 2001. Operations utilized net cash of $686,000.
                  Financing activities (net) provided cash of $1,349,000 over
                  the course of the year; capital expenditures (net) used
                  $336,000; and deferred acquisition financing used $683,000,
                  resulting in a decrease to cash on hand of $355,000. Net
                  working capital decreased by $15,259,000 to $(7,414,000)
                  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, 2001:


                                       18
<Page>

                           o        Accounts receivable (net of reserve for
                                    doubtful accounts) decreased by $2,808,000
                                    during the year. This decrease was a
                                    function of lower sales volume, while the
                                    average collection period remained at
                                    approximately 45 days.

                           o        Inventories decreased, net, by $1,885,000
                                    during the fiscal year. Management wrote off
                                    $2,719,000 of inventories that, under
                                    current business conditions, were of
                                    questionable value. In addition, the LIFO
                                    reserve decreased $151,000. Other
                                    operational inventories rose by $834,000
                                    over the course of the year, in large
                                    measure as a result of customers putting
                                    stop-orders on shipments of custom
                                    manufactured materials in response to
                                    uncertainties in the economic climate. The
                                    turnover rate remained approximately 2.0
                                    times from fiscal 2000 through fiscal 2001.
                                    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.

                           o        Prepaid expenses and other current assets
                                    increased by $429,000.

                           o        Current deferred income taxes decreased by
                                    $554,000.

                           o        Current liabilities, exclusive of current
                                    portions of long-term debt and capital lease
                                    obligations, decreased by $2,720,000 (net),
                                    as reduced levels of manufacturing activity
                                    decreased accounts payable and accrued
                                    liabilities by $1,838,000 and the Company's
                                    income taxes payable decreased by $882,000.
                                    The Company's average payment period on
                                    accounts payable and accrued expenses
                                    remained at 37 days from fiscal 2000 to
                                    fiscal 2001 (a decrease of $766,000).

                           o        Current portions of long-term debt and
                                    capital lease obligations increased by
                                    $13,421,000 (net) as the Company's defaults
                                    under its credit agreements caused related
                                    obligations to be reclassified as current.

                           o        Cash balances decreased by $355,000.

                  Management believes that, barring further deterioration in
                  economic conditions and sales activity, the Company's working
                  capital as now constituted should be adequate for the needs of
                  the on-going business, premised on the willingness of its
                  lending institutions to enter into forbearance agreements
                  providing relief on principal repayment schedules until
                  business conditions improve. Following the end of fiscal 2001,
                  the Company and its principal lending institutions have
                  engaged in negotiations to amend certain terms of its credit
                  facility and its equipment lease agreements, with the
                  objectives of reducing its revolving credit facility from $7.5
                  million to $7.0 million, entering into a forbearance agreement
                  suspending principal payments for a period of time, and
                  modifying certain financial covenants, all in recognition of
                  industry-wide business conditions.


                                       19
<Page>

                  Should management not obtain forbearance or additional
                  financing, the Company will not be able to continue in its
                  present form as such a going concern opinion was issued.
                  The Company, at the end of fiscal 2001, was using $6.8
                  million of its revolving credit facility.

                  Management believes that, in light of the Company's current
                  financial condition, the Company's working capital will be
                  inadequate to provide for cash needs that would be related to
                  carrying out its acquisition program. As a result, management
                  has formally suspended pursuit of any acquisition activities
                  until the Company's financial condition improves materially.

                  Outlay for capital expenditures in fiscal 2001 amounted to
                  $336,000 net ($4,489,000 including capital leases, net of
                  equipment dispositions), as compared to $500,000 net
                  ($3,855,000 including capital leases, net of equipment
                  dispositions), in fiscal 2000. 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 ($2,127,000), (2) expansion of productive
                  capacity to service key accounts in contract manufacturing
                  relationships ($2,185,000), and (3) upgrading, support and
                  installation of new computer and communications equipment
                  ($177,000). Capital spending plans for fiscal 2002 call for
                  minimal additions and upgrades to productive 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 three years following the closing (36 months
                  ended June 30, 2001) amounted to approximately $5,981,000, of
                  which $1,522,000 was paid in cash with the balance due in
                  notes payable over five years expiring September, 2006.

                  On November 15, 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.

                  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 expects therefore, to


                                       20
<Page>

                  experience materially adverse effects on profitability from
                  any marked downturn in sales volume until management is able
                  to reduce fixed costs. Because the Company's delivery
                  lead-times are relatively short, there is relatively little
                  backlog at any given time, and the effect of a downturn in
                  sales volume is 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. 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.

                  EXPANSION PLANS

                  Management has developed a plan to expand the size of the
                  Company. The plan has four fundamental 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
                  support implementation of expansion plans. Management
                  believes that, in light of the Company's current financial
                  condition, the Company's working capital will be inadequate
                  to provide for cash needs that would be related to carrying
                  out its acquisition program. As a result, management has
                  formally suspended pursuit of any acquisition activities
                  until the Company's financial condition improves materially.
                  Plans to raise additional equity will be carried out when
                  management considers it appropriate to do so.

                  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 Derivative Investments and
                  Hedging Activities" ("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.


                                       21
<Page>

                  SFAS 133 is effective for financial statements for periods
                  with fiscal years beginning after June 15, 2000. The Company
                  has entered into an interest rate collar transaction. The
                  notional amount of the transaction is $6,000,000 with an
                  interest rate cap of 6.25% and an interest rate floor of
                  5.00%. The interest rate collar expires in December 31, 2003.
                  The collar reduces the Company's exposure to interest rate
                  increases on its variable rate debt.

                  B) Business Combinations

                  In June 2001, the Financial Accounting Standards Board
                  ("FASB") issued Statement of Financial Accounting No. 141,
                  "Business Combinations" ("FAS No. 141"), which requires that
                  the purchase method of accounting be used for all business
                  combinations initiated after June 30, 2001, establishes
                  specific criteria for the recognition of intangible assets
                  separately from goodwill, and requires that unallocated
                  negative good will be written off immediately as an
                  extraordinary gain instead of being deferred and amortized.
                  The Company will account for business combinations after June
                  30, 2001 in accordance with the guidance in FAS No. 141.

                  C)  Goodwill and Other Intangible Assets

                  In June 2001, the Financial Accounting Standards Board also
                  issued Statement of Financial Accounting No. 142, "Goodwill
                  and Other Intangible Assets" ("FAS No. 142"). Under FAS No.
                  142, goodwill and indefinite lived tangible assets will no
                  longer be amortized. Instead, goodwill and indefinite lived
                  tangible assets will be subject to annual impairment tests
                  performed under the guidance of the statement. Additionally,
                  the amortization period of intangible assets with finite lives
                  will no longer be limited to forty years. The Company has
                  elected to implement FAS No. 142 on October 1, 2002 and is
                  currently evaluating the effect of implementation.

                  D) Accounting for Obligations Associated with the Retirement
                  of Long-Lived Assets

                  In June 2001, the Financial Accounting Standards Board also
                  issued Statement of Financial Accounting No. 143, "Accounting
                  for Obligations Associated with the Retirement of Long-Lived
                  Assets" ("FAS No. 143"). The objective of FAS No. 143 is to
                  establish an accounting standard for the recognition and
                  measurement of an asset retirement obligation on certain
                  long-lived assets. The retirement obligation must be one that
                  results from the acquisition, construction or normal operation
                  of a long-lived asset. FAS 143 requires the legal obligation
                  associated with the retirement of a tangible long-lived asset
                  to be recognized at fair value as a liability when incurred,
                  and the cost to be capitalized by increasing the carrying
                  amount of the related long-lived asset. FAS No. 143 will be
                  effective for the Company on October 1, 2002. The Company is
                  currently evaluating the effect of implementing FAS No. 143.

                  E) Accounting for the Impairment or Disposal of Long-Lived
                  Assets

                  In October 2001, the Financial Accounting Standards Board also
                  issued Statement of Financial Accounting No. 144, "Accounting
                  for the Impairment or Disposal of


                                       22
<Page>

                  Long-Lived Assets" ("FAS No. 144"), which supercedes Statement
                  No. 121, "Accounting for the Impairment of Long-Lived Assets
                  and for Long-Lived Assets to be Disposed of" ("FAS121").
                  Although it retains the basic requirements of FAS 121
                  regarding when and how to measure an impairment loss, FAS 144
                  provides additional implementation guidance. FAS 144 will be
                  effective for the Company on October 1, 2002. The Company is
                  currently evaluating the effect of implementing FAS 144.

ITEM 7A -         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK

                  The Company's exposure to market risk for changes in interest
                  rate relates primarily to the Company's variable rate debt.
                  The Company manages this risk through the utilization of an
                  interest rate collar in an amount not exceeding the principal
                  amount of its outstanding debt. At September 30, 2001, the
                  notional amount of the Company's interest rate collar was
                  $6,000,000 with an interest rate cap of 6.25% and an interest
                  rate floor of 5%. The interest rate collar expires December
                  31, 2003. The interest rate collar is accounted for as a fair
                  value hedge and the Company recorded an interest expense as
                  calculated using the mark-to-market method.

ITEM 8   -        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         (1)      Financial Statements

                  See index to Financial Statements on Page F-2.

ITEM 9   -        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

                  None

                                       23
<Page>

                                    PART III

ITEM 10   -       DIRECTORS AND EXECUTIVE OFFICERS

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

<Table>
<Caption>

 Name                        Age     Position(s) Held with Company
 -------------------------------------------------------------------------------

<S>                          <C>     <C>
Mark Hopkinson               54      Chairman of the Board of Directors,
                                     Chief Executive Officer, Secretary

Salvator Baldi               80      Executive Vice President, Director

P.K. Bartow                  54      Director

Christopher T. Linen         54      Director

Michael Michaelson           79      Director

Michael Foster               66      Director

Paul M. Cervino              47      President, Principal Operating
                                     Officer, Treasurer

Andrew J. Beck               53      Assistant Secretary

Gerald J. Bentivegna         52      Chief Financial Officer, Principal
                                     Accounting Officer
</Table>


                  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


                                       24
<Page>

                  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 54, 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 80, 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.

                  P.K. Bartow, age 54, 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 54, 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 Chairman of
                  Nirvana Soft Inc., and a Trustee of The Family Academy, an
                  experimental public school. He holds a B.A. from Williams
                  College


                                       25
<Page>

                  and attended the Graduate School of Business Administration at
                  New York University.

                  Michael Michaelson, age 79, 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. From 1986 to 1989, he was
                  Chairman of the Council on Economic Priorities. From 1977 to
                  1979, he was co-founder and Chairman of the Board of Games
                  Magazine, which was sold to Playboy magazine in 1979. From
                  1970 to 1978, Mr. Michaelson worked for Publishers Clearing
                  House, where he was Senior Vice President. From 1968 to 1970,
                  he was President and Founder of Campus Subscriptions, Inc. Mr.
                  Michaelson served in the United States Army in the South
                  Pacific during World War II, where he was a Company Commander
                  in the 35th infantry, 25th division and received the Bronze
                  Star and the Purple Heart. He received a B.S. degree from New
                  York University in 1948.

                  Michael Foster, age 66, is a Consultant and Private Investor.
                  In 1999, Mr. Foster retired as Chairman and CEO of WPI Group,
                  Inc., a publicly traded manufacturer and marketer of a broad
                  range of rugged hand held DOS and Windows based computers for
                  industrial applications, as well as a group of power products,
                  including electronic ballasts, transformers and complete power
                  systems. He has also served as a Director and member of the
                  Executive Committee and Audit Committee of Foilmark, Inc., a
                  Massachusetts based manufacturer of metalized foils and foil
                  stamping equipment whose stock was publicly traded.

                  Paul M. Cervino, age 47, 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.

                  Andrew J. Beck, age 53, has been a partner with the law firm
                  of Torys LLP 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.

                  Gerald J. Bentivegna, age 52, has been the Chief Financial
                  Officer of the Company since July 2001. Prior to 2001, he was
                  employed by CopyTele, Inc., an encryption and display company.
                  From 1994 to 2000, he served as Vice President - Finance and
                  Chief Financial Officer of CopyTele, and was elected to their
                  Board of Directors in 1995. Prior to 1994, Mr. Bentivegna was
                  employed at Marino Industries Corp. for approximately 10
                  years, where he served as Chief Financial Officer, Treasurer
                  and Controller. He holds a M.B.A. degree in Finance from Long
                  Island University and a B.B.A. degree in Accounting from
                  Dowling College.


                                       26
<Page>

ITEM 11  -        EXECUTIVE COMPENSATION

                  The following table sets forth the salary and bonus
                  compensation paid during the fiscal years ended September 30,
                  2001, 2000 and 1999 to the Chairman and Chief Executive
                  Officer of the Company. No other Executive Officer of the
                  Company received fiscal 2001 salary and bonus compensation
                  which exceeded $100,000. The Company's Directors receive
                  $1,250 per quarter and 25,000 options per year for their
                  services as such and reimbursement for any expenses they may
                  incur in connection with their services as Directors.

<Table>
<Caption>

                                  "Summary Compensation Table"
--------------------------------------------------------------------------------------------------
Name and Principal      Fiscal Year       Salary        Other Annual       Long Term Compensation
Position                                                Compensation      Awards-Options/ SAR's
--------------------------------------------------------------------------------------------------
<S>                         <C>          <C>               <C>                   <C>
Mark Hopkinson,             2001         $160,741          $25,000                  0
Chairman and Chief
Executive Officer
                            2000         $128,535            $0                  225,000
                            1999         $123,725            $0                   22,000
</Table>

                  Under the terms of the Company's 1993 Incentive Stock Option
                  Plan, the following options were granted to the Chief
                  Executive Officer of the Company during fiscal year 2001.

<Table>
<Caption>

                             "Option/SAR Grants in Last Fiscal Year"
--------------------------------------------------------------------------------------------------
Name                           Number of       % of Total Options    Exercise or     Expiration
                               Securities          Granted to         Base Price        Date
                               Underlying     Employees in Fiscal       ($/Sh)
                            Options Granted           Year
--------------------------------------------------------------------------------------------------
<S>                                <C>                 <C>               <C>            <C>
Mark Hopkinson                     0                   0%                N/A            N/A
</Table>

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

<Table>
<Caption>

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

                                                            Exercisable/             Exercisable/
                                                           Unexercisable            Unexercisable
--------------------------------------------------------------------------------------------------
<S>                          <C>           <C>                 <C>                     <C>
Mark Hopkinson               -             $ -                 279,000/0               $11,990/$0
</Table>

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

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

                  Under the terms of its employee stock option plan (adopted in
                  October, 1993 and amended in December, 1995, January, 1998 and
                  February, 2001), the Board of Directors is empowered at its
                  discretion to award options to purchase an aggregate


                                       27
<Page>

                  of 2,000,000 shares of the Company's common stock to key
                  employees. Prior to fiscal 2001, the Company had granted
                  options to purchase an aggregate of 1,491,500 shares to key
                  employees and Directors, with exercise prices ranging from
                  $0.35 to $3.00 per share. During fiscal 2001, 112,500 of such
                  options were cancelled. Also during fiscal 2001, the Company
                  granted options to purchase 130,000 shares of the Company's
                  common stock, at an exercise price of $1.00 per share to 7
                  individuals (four Directors and three non-executive managers).

ITEM 12  -        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 December 14, 2001:

<Table>
<Caption>

                                Name                                         Number of     Current
                                                                             Shares Owned  Percentage
                                ----------------------------------------------------------------------
<S>                                                                             <C>           <C>
                                Mark Hopkinson (1) (3)                          1,032,011     19.74%
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                P.K. Bartow (2) (4)                               866,866     16.68%
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                Salvator Baldi (1) (5)                            653,075     12.62%
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                Michael Michaelson (2) (6)                        210,000     4.07%
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                Christopher T. Linen (2) (8)                      211,000     4.16%
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                Michael Foster (2) (10)                            25,000     0.50%
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                Andrew J. Beck (7)(11)                             16,000     0.32%
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                Paul M. Cervino (7) (9)                           176,000     3.45%
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                Gerald J. Bentivegna (7)                                -             -
                                325 Duffy Avenue
                                Hicksville, NY  11801

                                All Executive Officers and                      3,189,952     51.18%
                                Directors as a Group (9 persons)
</Table>


                                       28
<Page>


ITEM 12  -        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT (CONTINUED)

                  (1)      Officer and Director.

                  (2)      Director only.

                  (3)      Mark Hopkinson is General Partner of the Hopkinson
                           Family Partnership (in which he has exclusive
                           management rights), which owns 700,000 of the shares
                           included herein. Also, includes 279,000 shares
                           represented by currently exercisable options. Mr.
                           Hopkinson disclaims beneficial ownership of 15,700
                           shares owned by his wife.

                  (4)      Included in Mr. Bartow's shareholdings are 250,000
                           shares represented by currently exercisable options.
                           Mr. Bartow disclaims ownership of 15,000 shares owned
                           by his immediate family.

                  (5)      Included in Mr. Baldi's shareholdings are 225,000
                           shares represented by currently exercisable options.
                           Mr. Baldi disclaims beneficial ownership of 100,000
                           shares owned by his wife and 95,000 shares owned by
                           various members of his immediate family.

                  (6)      Included in Mr. Michaelson's shareholdings are
                           210,000 shares represented by currently exercisable
                           options. Mr. Michaelson disclaims ownership of
                           216,000 shares owned by his wife.

                  (7)      Officer only.

                  (8)      Included in Mr. Linen's shareholdings are 125,000
                           shares represented by currently exercisable options.

                  (9)      Included in Mr. Cervino's shareholdings are 160,400
                           shares represented by currently exercisable options.

                  (10)     Included in Mr. Foster's shareholdings are 25,000
                           shares represented by currently exercisable options.

                  (11)     Included in Mr. Beck's shareholdings are 10,000
                           shares represented by currently exercisable options.

                                       29
<Page>

ITEM 13  -        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  Not applicable.

ITEM 14  -        EXHIBITS AND REPORTS ON FORM 8-K

                  (a)      Exhibits

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

                  (b)      Reports on Form 8-K

                           No reports on Form 8-K were filed in the last quarter
                           of fiscal 2001.



                                       30
<Page>

                                   SIGNATURES

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

                                                     ALLIED DEVICES CORPORATION


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

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

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

/s/ Mark Hopkinson           Chairman of the Board,             January 14, 2002
------------------           Principal Executive Officer,
Mark Hopkinson               and Director


/s/ Salvator Baldi           Executive Vice President           January 14, 2002
------------------           and Director
Salvator Baldi


/s/ Philip Key Bartow        Director                           January 14, 2002
---------------------
Philip Key Bartow


/s/ Michael Michaelson       Director                           January 14, 2002
----------------------
Michael Michaelson


/s/ Christopher T. Linen     Director                           January 14, 2002
------------------------
Christopher T. Linen


/s/ Michael Foster           Director                           January 14, 2002
------------------
Michael Foster


/s/ Paul M. Cervino          President, Principal Operating     January 14, 2002
-------------------          Officer, and Treasurer
Paul M. Cervino


/s/ Gerald J. Bentivegna     Chief Financial Officer and        January 14, 2002
------------------------     Principal Accounting Officer
Gerald J. Bentivegna


                                       31
<Page>





               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               ---------------------------------------------------

Stockholders and Board of Directors of
Allied Devices Corporation
Hicksville, 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, April 8, 1996 and May 18, 2001 of our report dated January 11,
2002 relating to the consolidated financial statements of Allied Devices
Corporation and subsidiaries appearing in the Company's Annual Report on
Form 10-K for the year ended September 30, 2001.

BDO SEIDMAN, LLP
Melville, New York

January 11, 2002
<Page>







                           ALLIED DEVICES CORPORATION
                                     AND SUBSIDIARIES




================================================================================
                                               CONSOLIDATED FINANCIAL STATEMENTS
                                   YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999






                                                                             F-1
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                                                           INDEX

================================================================================

        REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                   F-3


        CONSOLIDATED FINANCIAL STATEMENTS

           Balance sheets                                                    F-4

           Statements of operations                                          F-5

           Statements of stockholders' equity                                F-6

           Statements of cash flows                                          F-7

           Notes to financial statements                              F-8 - F-31

           Schedule II                                                       S-1





                                                                             F-2
<Page>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors of
Allied Devices Corporation
Hicksville, New York

We have audited the accompanying consolidated balance sheets of Allied
Devices Corporation and subsidiaries as of September 30, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 30,
2001. We have also audited the Schedule listed in the accompanying index for
the same periods. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and schedule. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement and schedule
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, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 2001 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
schedule presents fairly, in all material respects the information set forth
therein for each of the three years in the period ended September 30, 2001.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2, the Company is in default on certain financial covenants contained in
its debt agreements and is attempting to negotiate changes to the terms of
its debt obligations. In the absence of such contemplated changes, its
current inability to generate sufficient cash from operations to fund its
debt obligations raises substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are discussed in
Note 2. The consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty.

BDO Seidman, LLP

Melville, New York

January 11, 2002



                                                                             F-3
<Page>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS

================================================================================
<Table>
<Caption>
 SEPTEMBER 30,                                                                           2001                   2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                     <C>
 ASSETS
 CURRENT:
    Cash                                                                       $       54,722          $     410,186
    Accounts receivable, net of allowance for doubtful accounts of
       $60,000 and $67,000, respectively                                            2,131,273              4,939,164
    Inventories                                                                     8,422,690             10,298,923
    Prepaid expenses and other current assets                                         549,432                119,961
    Income tax refund receivable                                                      605,503                      -
    Deferred income taxes                                                                   -                554,000
-------------------------------------------------------------------------------------------------------------------
         TOTAL CURRENT ASSETS                                                      11,763,620             16,322,234
 PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF ACCUMULATED
    DEPRECIATION AND AMORTIZATION                                                  13,182,951              9,750,586
 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET OF
    ACCUMULATED AMORTIZATION OF $1,448,238 AND $963,386                             8,295,464              5,061,944
 DEFERRED INCOME TAXES                                                                885,400                      -
 OTHER ASSETS                                                                         173,345                429,009
-------------------------------------------------------------------------------------------------------------------
                                                                                 $ 34,300,780           $ 31,563,773
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT:
    Accounts payable                                                            $   1,648,924          $   3,539,960
    Income taxes payable                                                                    -                881,801
    Accrued expenses and other                                                      1,211,534              1,158,941
    Current portion of long-term debt and capital lease obligations                16,317,496              2,896,742
-------------------------------------------------------------------------------------------------------------------
         TOTAL CURRENT LIABILITIES                                                 19,177,954              8,477,444
 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS                                       7,584,337             11,257,491
 OTHER LIABILITIES                                                                    341,630                 91,218
 DEFERRED INCOME TAXES                                                                      -                781,000
-------------------------------------------------------------------------------------------------------------------
         TOTAL LIABILITIES                                                         27,103,921             20,607,153
-------------------------------------------------------------------------------------------------------------------
 STOCKHOLDERS' EQUITY
    Common stock, $.001 par value, authorized 25,000,000 shares,
       issued and outstanding 5,048,742 and 4,947,942                                   5,049                  4,948
    Additional paid-in capital                                                      3,520,970              3,624,721
    Retained earnings                                                               3,800,011              7,456,122
-------------------------------------------------------------------------------------------------------------------
        SUBTOTAL                                                                    7,326,030             11,085,791
     Treasury stock, at cost (100,350 shares)                                        (129,171)              (129,171)
-------------------------------------------------------------------------------------------------------------------
       TOTAL STOCKHOLDERS' EQUITY                                                   7,196,859             10,956,620
-------------------------------------------------------------------------------------------------------------------
                                                                                $  34,300,780          $  31,563,773
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</Table>

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                             F-4
<Page>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>

 YEAR ENDED SEPTEMBER 30,                                                     2001                    2000                  1999
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                   <C>                     <C>                   <C>
 NET SALES                                                            $ 29,658,263            $ 32,281,423          $ 22,827,298

 COST OF SALES                                                          21,981,399              21,175,601            15,031,821

 WRITE-OFF OF DISCONTINUED PRODUCTS                                      2,718,859                       -                     -
------------------------------------------------------------------------------------------------------------------------------------

    GROSS PROFIT                                                         4,958,005              11,105,822             7,795,477

 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                            8,031,342               7,507,908             6,013,032

 RESTRUCTURING EXPENSE                                                     914,785                       -                     -
------------------------------------------------------------------------------------------------------------------------------------

    (LOSS) INCOME FROM OPERATIONS                                       (3,988,122)              3,597,914             1,782,445

 OTHER (INCOME) EXPENSE                                                     (7,536)                 69,503                     -

 INTEREST EXPENSE, NET                                                   1,706,338               1,220,592             1,007,807
------------------------------------------------------------------------------------------------------------------------------------

    (LOSS) INCOME BEFORE TAX (BENEFIT) EXPENSE                          (5,686,924)              2,307,819               774,638

 TAX (BENEFIT) EXPENSE                                                  (2,030,813)                833,123               279,644
------------------------------------------------------------------------------------------------------------------------------------

 NET (LOSS) INCOME                                                   $  (3,656,111)           $  1,474,696          $    494,994
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

 NET (LOSS) INCOME PER SHARE - BASIC                                 $        (.74)           $        .30          $        .10
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

 NET (LOSS) INCOME PER SHARE - DILUTED                               $        (.74)           $        .27          $        .10
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</Table>

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                                                             F-5
<Page>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

================================================================================

<Table>
<Caption>

                                  Common Stock $0.001 par value
                                 --------------------------------

                                                                                                                         Total
                                                                    Additional                        Retained       Stockholders'
                                 Number of Shares     Amount      Paid-in Capital  Treasury Stock     Earnings          Equity
------------------------------------------------------------------------------------------------------------------------------------

<S>                                  <C>                <C>         <C>            <C>               <C>              <C>
 BALANCE, SEPTEMBER 30, 1998         4,947,942          $ 4,948     $ 3,624,721    $           -     $ 5,486,432      $ 9,116,101

    NET INCOME                                                                                           494,994          494,994

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

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

    NET INCOME                                                                                         1,474,696        1,474,696
------------------------------------------------------------------------------------------------------------------------------------

 BALANCE, SEPTEMBER 30, 2000         4,947,942            4,948       3,624,721         (129,171)      7,456,122       10,956,620

    NET LOSS                                                                                          (3,656,111)      (3,656,111)

    SALE OF COMMON STOCK                   800                1           2,599                                             2,600

    SHARES ISSUED FOR
       ACQUISITION                     100,000              100         399,900                                           400,000

    STOCK PRICE GUARANTEE
       RELATED TO ACQUISITION                                          (506,250)                                         (506,250)
------------------------------------------------------------------------------------------------------------------------------------

 BALANCE, SEPTEMBER 30, 2001         5,048,742          $ 5,049     $ 3,520,970       $ (129,171)    $ 3,800,011      $ 7,196,859
------------------------------------------------------------------------------------------------------------------------------------
</Table>

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                                                             F-6
<Page>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                       (NOTE 14)

================================================================================
<Table>
<Caption>

 YEAR ENDED SEPTEMBER 30,                                                     2001                  2000                  1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                    <C>                   <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
    Net (loss) income                                                 $ (3,656,111)          $ 1,474,696           $   494,994
------------------------------------------------------------------------------------------------------------------------------------
    Adjustments to reconcile net (loss) income to net cash
      provided by (used in) operating activities:
         Depreciation and amortization                                   2,469,080             1,806,807             1,622,679
         Deferred income taxes                                          (1,112,400)               66,000              (107,000)
         Write-off of discontinued products                              2,718,859                     -                     -
         Loss (gain) on sale of equipment                                   (7,536)               78,012                (2,300)
         Unrealized loss on interest rate collar                           200,000                     -                     -
    Changes in assets and liabilities, net of effects
      from acquisitions:
         Decrease (increase) in:
            Accounts receivable                                          2,807,891            (1,888,280)             (524,816)
            Inventories                                                   (833,626)             (567,150)             (828,553)
            Prepaid expenses and other current assets                     (393,263)                6,941               239,155
            Income tax refund receivable                                  (605,503)                    -                     -
            Other assets                                                   141,047              (114,043)              (99,307)
         (Decrease) increase in:
            Accounts payable and accrued expenses                       (1,583,237)            2,438,551               730,144
            Other liabilities                                               50,411                91,218                     -
            Income taxes payable                                          (881,801)              601,023               280,778
------------------------------------------------------------------------------------------------------------------------------------
         Total adjustments                                               2,969,922             2,519,079             1,310,780
------------------------------------------------------------------------------------------------------------------------------------
 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                      (686,189)            3,993,775             1,805,774
------------------------------------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                                  (515,648)             (775,453)             (212,344)
    Business acquisitions, net of cash acquired                           (682,975)             (896,129)             (350,000)
    Proceeds from sale of equipment                                        180,000               275,450                 2,500
------------------------------------------------------------------------------------------------------------------------------------
 NET CASH USED IN INVESTING ACTIVITIES                                  (1,018,623)           (1,396,132)             (559,844)
------------------------------------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase (decrease) in revolving credit borrowings                   3,900,000              (500,000)              150,000
    Principal payments on long-term debt and capital lease
       obligations                                                      (2,777,363)           (2,105,496)           (1,043,608)
    Proceeds from equipment financing                                      224,111                     -                     -
    Treasury stock acquired                                                      -                     -              (129,171)
    Proceeds from sale of common stock                                       2,600                     -                     -
    Deferred financing costs                                                     -               (25,000)              (55,350)
------------------------------------------------------------------------------------------------------------------------------------
 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                     1,349,348            (2,630,496)           (1,078,129)
------------------------------------------------------------------------------------------------------------------------------------
 NET (DECREASE) INCREASE IN CASH                                          (355,464)              (32,853)              167,801
 CASH, BEGINNING OF PERIOD                                                 410,186               443,039               275,238
------------------------------------------------------------------------------------------------------------------------------------
 CASH, AT END OF PERIOD                                              $      54,722         $     410,186         $     443,039
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</Table>


                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                                                             F-7
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

1.       SUMMARY OF            (A)  BUSINESS
         ACCOUNTING POLICIES

                                    The Company is comprised of Allied Devices
                                    Corporation ("ADCO"), and its wholly owned
                                    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. 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.

                                (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:

<Table>

<S>                                                                                  <C>
                                    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
</Table>


                                                                             F-8
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                (E) INCOME TAXES

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

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

                                (F) EARNINGS PER SHARE

                                    Basic earnings per share are 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:

<Table>
<Caption>

                        YEAR ENDED SEPTEMBER 30,                        2001               2000               1999
                        ------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>                <C>
                        Weighted average shares                    4,935,965          4,847,592          4,913,524
                          outstanding - basic
                        Dilutive effect of options and
                          warrants                                         -            690,156             35,022
                        ------------------------------------------------------------------------------------------
                        Weighted average shares

                          outstanding - diluted                    4,935,965          5,537,748          4,948,546
                        ------------------------------------------------------------------------------------------
</Table>


                                    Options and warrants totaling 770,625,
                                    143,500 and 282,864 at September 30, 2001,
                                    2000 and 1999, respectively, were
                                    antidilutive and, accordingly, excluded from
                                    the diluted calculation.

                                                                             F-9
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                (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) SHIPPING AND HANDLING COSTS

                                    On October 1, 2000, the Company adopted the
                                    classification requirements for shipping and
                                    handling fees and costs as required under
                                    EITF No. 00-10, "Accounting for Shipping and
                                    Handling Fee Costs." Accordingly, shipping
                                    and handling fee costs, which historically
                                    were included in Selling, General and
                                    Administrative expenses, are recorded in
                                    Cost of Sales. Prior periods have been
                                    restated to conform with this presentation.

                                (K) ADVERTISING EXPENSES

                                    Advertising expenses are expensed as
                                    incurred and amounted to $206,000, $203,000
                                    and $151,000 for the years ended September
                                    30, 2001, 2000 and 1999, respectively.

                                                                            F-10
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                (L) 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,
                                    provides 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.

                                (M) 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.

                                (N) FAIR VALUE FINANCIAL INSTRUMENTS

                                    The carrying amounts of financial
                                    instruments, including cash and short-term
                                    debt, approximated fair value as of
                                    September 30, 2001, 2000 and 1999. The
                                    carrying value of long-term debt,
                                    approximates fair value as of September 30,
                                    2001, 2000 and 1999 based upon the borrowing
                                    rates currently available to the Company for
                                    bank loans with similar terms and average
                                    maturities.

                                                                            F-11
<Page>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                (O) CONCENTRATIONS OF 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.

                                    In the most recent fiscal year, the
                                    Company's ten largest customers represented
                                    approximately 51% of sales. The Company's
                                    sales to the semiconductor equipment
                                    industry represented approximately
                                    50% of total sales for the year ended
                                    September 30, 2001.

                                (P) RECENT ACCOUNTING PRONOUNCEMENTS

                                    (I) INVESTMENT DERIVATIVES AND HEDGING
                                        ACTIVITIES

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



                                                                            F-12
<Page>

                                        The Company adopted FAS 133 on
                                        October 1, 2000. The effect of the
                                        adoption was immaterial. The
                                        Company has an interest rate collar
                                        contract. The notional amount is
                                        $6,000,000 with an interest rate cap
                                        of 6.25% and an interest rate floor
                                        of 5.00%. The interest rate collar
                                        expires December 31, 2003. The collar
                                        reduces the Company's exposure to
                                        interest rate increases on its
                                        variable rate debt. The interest
                                        rate collar is accounted for as a
                                        fair value hedge.

                                        During the year ended September 30,
                                        2001, the Company recorded approximately
                                        $212,000 of interest expense related to
                                        the fair value of the collar.

                                   (II) BUSINESS COMBINATIONS

                                        In June 2001, the Financial Accounting
                                        Standards Board ("FASB") issued
                                        Statement of Financial Accounting No.
                                        141, "Business Combinations" ("FAS No.
                                        141"), which requires that the purchase
                                        method of accounting be used for all
                                        business combinations initiated after
                                        June 30, 2001, establishes specific
                                        criteria for the recognition of
                                        intangible assets separately from
                                        goodwill, and requires that unallocated
                                        negative goodwill be written off
                                        immediately as an extraordinary gain
                                        instead of being deferred and amortized.
                                        The Company will account for business
                                        combinations after June 30, 2001 in
                                        accordance with the guidance in FAS No.
                                        141.

                                                                            F-13
<Page>

                                  (III) GOODWILL AND OTHER INTANGIBLE ASSETS

                                        In June 2001, the Financial Accounting
                                        Standards Board also issued Statement of
                                        Financial Accounting No. 142, "Goodwill
                                        and Other Intangible Assets" ("FAS No.
                                        142"). Under FAS No. 142, goodwill and
                                        indefinite lived tangible assets will no
                                        longer be amortized. Instead, goodwill
                                        and indefinite lived tangible assets
                                        will be subject to annual impairment
                                        tests performed under the guidance of
                                        the statement. Additionally, the
                                        amortization period of intangible assets
                                        with finite lives will no longer be
                                        limited to forty years. The Company's
                                        business combinations prior to adoption
                                        of FAS No. 142 have been accounted for
                                        using the purchase method. As of
                                        September 30, 2001, the net carrying
                                        value of goodwill was $8,295,464.
                                        Amortization expense during the year
                                        ended September 30, 2001, was $524,821.
                                        The Company has elected to implement
                                        FAS No. 142 on October 1, 2002.
                                        Implementation of FAS No. 142 may have
                                        a material effect on the Company's
                                        financial statements.


                                                                            F-14
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                   (IV) ACCOUNTING FOR OBLIGATIONS ASSOCIATED
                                        WITH THE RETIREMENT OF LONG-LIVED ASSETS

                                        In June 2001, the Financial Accounting
                                        Standards Board also issued Statement of
                                        Financial Accounting No. 143,
                                        "Accounting for Obligations Associated
                                        with the Retirement of Long-Lived
                                        Assets" ("FAS No. 143"). The objective
                                        of FAS No. 143 is to establish an
                                        accounting standard for the recognition
                                        and measurement of an asset retirement
                                        obligation on certain long-lived assets.
                                        The retirement obligation must be one
                                        that results from the acquisition,
                                        construction or normal operation of a
                                        long-lived asset. FAS 143 requires the
                                        legal obligation associated with the
                                        retirement of a tangible long-lived
                                        asset to be recognized at fair value as
                                        a liability when incurred, and the cost
                                        to be capitalized by increasing the
                                        carrying amount of the related
                                        long-lived asset. FAS No. 143 will be
                                        effective for the Company on October 1,
                                        2002. The Company is currently
                                        evaluating the effect of implementing
                                        FAS No. 143.

                                                                            F-15
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                    (V) ACCOUNTING FOR THE IMPAIRMENT OR
                                        DISPOSAL OF LONG-LIVED ASSETS

                                        In October 2001, the Financial
                                        Accounting Standards Board also issued
                                        Statement of Financial Accounting No.
                                        144, "Accounting for the Impairment or
                                        Disposal of Long-Lived Assets" ("FAS No.
                                        144"), which supercedes Statement No.
                                        121, "Accounting for the Impairment of
                                        Long-Lived Assets and for Long-Lived
                                        Assets to be Disposed of" ("FAS121").
                                        Although it retains the basic
                                        requirements of FAS 121 regarding when
                                        and how to measure an impairment loss,
                                        FAS 144 provides additional
                                        implementation guidance. FAS 144 will be
                                        effective for the Company on October 1,
                                        2002. The Company is currently
                                        evaluating the effect of implementing
                                        FAS 144.

                                                                            F-16
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

2.       GOING CONCERN              The Company is currently in default on
                                    certain financial covenants contained
                                    in its debt agreements and is unable
                                    to generate sufficient cash from operations
                                    to fund its short term debt obligations. The
                                    Company's management is currently in
                                    negotiations with certain debt holders to
                                    obtain forbearance on these defaults and on
                                    making principal payments on its debt until
                                    December 2002. Management believes that
                                    obtaining this forbearance on making
                                    principal payments on certain of its debt
                                    will enable the Company to fund its
                                    liquidity needs until it returns to
                                    profitability upon an economic recovery.
                                    Should the Company not be able to obtain
                                    forbearance, management believes that there
                                    are alternative financing sources such as
                                    future stock sales, private placements or
                                    convertible financing instruments.

                                    Although management believes that it will
                                    be able to obtain the desired debt
                                    forberance, there can be no assurance that
                                    this forbearance will be obtained, that it
                                    will return to profitability upon economic
                                    recovery, or that additional financing will
                                    be available, or if available, will be on
                                    terms acceptable to the Company. Any
                                    additional stock or convertible financing
                                    could result in substantial dilution to
                                    stockholders. Should management be unable to
                                    obtain forbearance or additional financing,
                                    the Company will not be able to continue in
                                    its present form. The financial statements
                                    do not contain any adjustments that might be
                                    necessary if the Company is unable to
                                    continue as a going concern.

3.       RESTRUCTURING              In the third quarter of fiscal 2001, the
                                    Company developed and began to implement a
                                    cost savings initiative to increase
                                    long-term profitability. The Company closed
                                    three manufacturing facilities and
                                    consolidated these operations into a new
                                    facility in Sanford, Maine, following an
                                    orderly transition of production to the
                                    new facility. Other restructuring costs
                                    associated with downsizing to current
                                    business conditions include severence
                                    for layoffs througout the Company and
                                    professional fees incurred in restructuring
                                    and forbearance negotiations. The Company
                                    estimated the costs associated

                                                                            F-17
<Page>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                    with the restructuring to be approximately
                                    $915,000 and recorded this expense for the
                                    year ended September 30, 2001. The
                                    restructuring expense consisted of $243,000
                                    in moving costs paid and $672,000 in
                                    accrued expenses and liabilities. The
                                    accrual includes $142,000 in severance,
                                    $50,000 in moving costs, $200,000 in
                                    professional fees, which will be paid
                                    during fiscal 2002, and $280,000 in
                                    lease abandonment costs, which will be
                                    paid through fiscal 2005.

4.       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 acquired (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). On
                                    July 9, 2001, the Company settled the stock
                                    price guarantee portion of the APPI
                                    acquisition by issuing a note to the seller
                                    in the amount of $506,250 with interest
                                    thereon at 7% per annum. The note represents
                                    the difference between the guaranteed stock
                                    price of $4 per share and the average stock
                                    price from July 6 to July 9, 2001 for
                                    250,000 shares of stock. The Company has
                                    recorded this as a long term note payable
                                    and reduction of stockholders' equity. The
                                    note is subject to a subordination agreement
                                    between the seller and the Company's lending
                                    institution (Note 7).


                                                                            F-18
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                    The performance consideration was 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 was to record a
                                    liability for such amounts as the defined
                                    earnings are achieved. As of September 30,
                                    2001, contingent consideration of $5,981,061
                                    has been recorded as additional goodwill,
                                    of which $1,521,998 has been paid and
                                    $ 4,459,063 has been delivered in the form
                                    of five year notes, subordinated to the
                                    bank credit facility (Note 7), due through
                                    September 30, 2006 bearing interest at 7%
                                    per annum, in accordance with the terms of
                                    the asset purchase agreement. As of
                                    September 30, 2001 no further contingent
                                    consideration will accrue.

                                    On November 15, 2000, the Company acquired
                                    Martin Machine, Inc., located in Raymond,
                                    Maine. The acquisition was accounted for
                                    using the purchase method of accounting, and
                                    results of operations of this company have
                                    been included in Company financial
                                    statements from the date of acquisition.
                                    Original purchase consideration amounted to
                                    $1,031,000, including the value of 100,000
                                    shares of common stock (issued immediately
                                    following closing), $400,000 in cash, and a
                                    $300,000 five year note payable subordinated
                                    to the bank credit facility (Note 7), due
                                    through September 30, 2006, bearing interest
                                    at 7% per annum. Subsequent to the closing
                                    the Company paid an additional $18,912 in
                                    cash, which was recognized as additional
                                    goodwill. The total excess of cost over the
                                    fair value of assets acquired amounted to
                                    $448,374, which has been recorded as
                                    goodwill and is being amortized over a (15)
                                    fifteen-year period.

                                    The acquisition of Martin Machine was
                                    immaterial to net sales and net income of
                                    the Company for the years ended September
                                    30, 2001 and 2000 and therefore no pro forma
                                    information is provided.

                                    The Company is adopting FAS No. 142
                                    "Goodwill and Other Intangible Assets" on
                                    October 1, 2002. At that date, the above
                                    goodwill will no longer be amortized and
                                    will be subject to annual impairment tests.


                                                                            F-19
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

5.       INVENTORIES                Inventories are summarized as:

<Table>
<Caption>

                                    SEPTEMBER 30,                           2001            2000
                                    --------------------------------------------------------------
<S>                                                                 <C>             <C>
                                    Raw materials                   $    542,060    $  1,076,603
                                    Work-in-process                    1,616,320       1,112,276

                                    Finished goods                     6,264,310       8,261,481
                                    --------------------------------------------------------------
                                                                       8,422,690      10,450,360
                                    Less: adjustment to LIFO                   -         151,437
                                    --------------------------------------------------------------
                                                                    $  8,422,690     $10,298,923
                                    --------------------------------------------------------------
                                    --------------------------------------------------------------
</Table>


                                    In recognition of current business
                                    conditions, the Company wrote off
                                    approximately $2,720,000 of slower
                                    selling products, which have been
                                    discontinued.

                                    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 $ 151,437 and $ 1,461,539 for the
                                    years ended September 30, 2001 and 2000,
                                    respectively.


                                                                            F-20
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

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

<Table>
<Caption>

                                    SEPTEMBER 30,                                         2001                2000
                                    ------------------------------------------------------------------------------
<S>                                                                               <C>                 <C>
                                    Machinery and equipment                       $ 19,312,691        $ 14,266,238
                                    Tools, molds and dies                            1,312,124           1,201,556
                                    Furniture, fixtures and office equipment           675,933             608,324
                                    Leasehold improvements                             247,162             289,740
                                    Building and improvements                           94,520              94,520
                                    Land                                                 5,000               5,000
                                    ------------------------------------------------------------------------------
                                                                                    21,647,430          16,465,378
                                    Less: accumulated depreciation and
                                              amortization                           8,464,479           6,714,792
                                    ------------------------------------------------------------------------------
                                    Property, plant and equipment (net)          $  13,182,951        $  9,750,586
                                    ------------------------------------------------------------------------------
</Table>

                                    Included in machinery and equipment and
                                    office equipment at September 30, 2001 and
                                    2000 is approximately $11,116,000 and
                                    $6,742,000, respectively, of equipment under
                                    capital lease agreements (Note 9). At
                                    September 30, 2001 and 2000, the related
                                    accumulated depreciation amounts were
                                    approximately $2,224,000 and $1,136,000,
                                    respectively. Depreciation expense totaled
                                    $1,906,000, $1,394,000 and $1,188,000 for
                                    the fiscal years ended September 30, 2001,
                                    2000 and 1999, respectively.

7.       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.
                                    In October 2001, the Company and its lenders
                                    under took to negotiate a Forbearance
                                    Agreement, prompted by the Company's
                                    default on certain financial covenants
                                    contained in its lending agreements (Note
                                    2). No such agreement has been finalized
                                    to-date.

                                                                            F-21
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                    Under its credit agreement, the Company
                                    may borrow up to the lesser of
                                    $7,000,000 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
                                    (6.0% at September 30, 2001) plus 1/2% or a
                                    LIBOR rate plus 2.50%. 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 $6,800,000 and $2,900,000 at September
                                    30, 2001 and 2000, respectively.

                                    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 1/2% or a LIBOR rate
                                    plus 2.50%. 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 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 4). 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
                                    11). 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.

8.       ACCRUED EXPENSES AND       Accrued expenses consist of:
         OTHER

<Table>
<Caption>

                                     SEPTEMBER 30,                            2001            2000
                                     ---------------------------------------------------------------
<S>                                                                   <C>               <C>
                                     Commissions                      $     74,256      $  116,698
                                     Payroll and related                   347,594         834,196
                                     Other                                 789,684         208,047
                                     ---------------------------------------------------------------
                                                                        $1,211,534      $1,158,941
                                     ---------------------------------------------------------------
                                     ---------------------------------------------------------------
</Table>


                                                                            F-22
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

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

<Table>
<Caption>

                                    SEPTEMBER 30,                                         2001                2000
                                    ------------------------------------------------------------------------------

<S>                                                                                <C>                 <C>
                                    Revolving credit loan (Note 7)                 $ 6,800,000         $ 2,900,000

                                    Term note (Note 7)                               3,712,500           4,900,000

                                    Acquisition notes plus accrued interest
                                      (Note 4)                                       5,456,759           1,209,063

                                    Capital lease obligations with varying
                                      monthly payments and interest rates
                                      ranging from 7.2% to 9.9% per annum
                                      maturing 2003 through 2006; secured by an
                                      interest in specific machinery
                                      and equipment (Note 6)                         7,932,574           5,145,170
                                    ------------------------------------------------------------------------------

                                          Subtotal                                  23,901,833          14,154,233

                                    Less: current maturities                        16,317,496           2,896,742
                                    ------------------------------------------------------------------------------

                                    Long-term debt and capital lease
                                       obligations                                 $ 7,584,337        $ 11,257,491
                                    ------------------------------------------------------------------------------
                                    ------------------------------------------------------------------------------

</Table>


                                    Deferred financing costs (gross) included
                                    in other assets amounted to $297,223 at
                                    September 30, 2001 and 2000. Accumulated
                                    amortization amounted to $170,282 and
                                    $113,865 at September 30, 2001 and 2000,
                                    respectively.

                                    The Company has entered into a lease
                                    financing agreement with one of its
                                    customers whereby it has financed certain
                                    pieces of equipment purchased to manufacture
                                    product for that customer. Lease payments
                                    for each period of time are a calculated
                                    percentage of product value shipped to that
                                    customer during that period. At September
                                    30, 2001 the present value of minimum lease
                                    payments was $2,112,644.

                                                                            F-23
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                                    The following is a schedule of long-term
                                    debt maturities (including capital lease
                                    obligations) as of September 30, 2001:

                                    2002                           $  16,317,496
                                    Not scheduled                      7,584,337
                                    --------------------------------------------
                                                                    $ 23,901,833
                                    --------------------------------------------
                                    --------------------------------------------


10.      LEASES                     The Company rents facilities in Hicksville,
                                    New York and in Sanford, Maine under various
                                    operating lease agreements expiring through
                                    April 2011. In addition, the Company is also
                                    obligated for two leases in buildings it no
                                    longer occupies in Maine. As part of a
                                    restructuring in 2001, the Company has
                                    expensed $280,000, representing the full
                                    amount due under the remaining lease
                                    obligations. The Company also leases
                                    certain machinery, equipment and office
                                    equipment under various capital lease
                                    agreements expiring through 2006 (Note
                                    9). Rent expense amounted to approximately
                                    $1,003,000, $688,000 and $654,000 for the
                                    fiscal years ended September 30, 2001, 2000
                                    and 1999, respectively. Future minimum
                                    rental payments for operating leases as of
                                    September 30, 2001 are as follows:
<Table>
<Caption>

                                    --------------------------------------------
<S>                                                                  <C>
                                    2002                             $   844,935
                                    2003                                 859,942
                                    2004                                 875,098
                                    2005                                 891,005
                                    2006                                 908,112
                                    Thereafter                         3,901,643
                                    --------------------------------------------
                                    Total                             $8,280,735
                                    --------------------------------------------
</Table>

                                                                            F-24
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

11.      STOCKHOLDERS' EQUITY       (A) WARRANTS

                                        At September 30, 2001, the Company had
                                        125,000 stock warrants outstanding. As
                                        further discussed in Note 7, 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,
                                        January 1998, and February 2001, allows
                                        the Board of Directors to issue options
                                        to purchase an aggregate of 2,000,000
                                        shares of the Company's common stock to
                                        key employees.

                                        As of September 30, 2001, the Company
                                        had issued options to purchase an
                                        aggregate of 1,509,000 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 2001, 2000 and 1999: no
                                        dividend yield, expected volatility of
                                        approximately 80.00% to 46.00%, risk
                                        free interest rates of 4.72% 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 2001, 2000 and 1999 by
                                        approximately $ 86,000, $375,000 and
                                        $94,000, respectively, and net (loss)
                                        income per diluted share would have
                                        been $(.76), $.20 and $.08 for each
                                        year, respectively.

                                                                            F-25
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

The following table summarizes information about stock options outstanding at
September 30, 2001:

<Table>
<Caption>

                                                  Options Outstanding                           Options Exercisable
                                --------------------------------------------------------    --------------------------
           Exercise Price          Number       Weighted Average      Weighted Average         Number        Weighted
                                Outstanding         Remaining          Exercise Price        Exercisable      Average
                                                Contractual Life                                             Exercise
                                                     (years)                                                   Price
           -----------------------------------------------------------------------------------------------------------
<S>                                <C>                      <C>                <C>           <C>               <C>
              $         .35            4,600                 3.5               $ .35             4,600           $.35
              $   2.00-3.00           45,000                 4.6                2.92            45,000           2.92
              $    .35-2.44           66,400                 5.6                1.69            65,400           1.68
              $   1.88-2.25           47,500                 6.4                1.93            46,000           1.92
              $   1.06-1.31          212,500                 7.6                1.15           183,500           1.17
              $   1.03-2.03          949,400                 3.5                1.08           939,734           1.08
              $        1.00          130,000                10.0                1.00           102,000           1.00
           -----------------------------------------------------------------------------------------------------------
                                   1,455,400                 4.9               $1.20         1,386,234         $ 1.20
           -----------------------------------------------------------------------------------------------------------
           -----------------------------------------------------------------------------------------------------------
</Table>



                                                                            F-26
<Page>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

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

<Table>
<Caption>

                                                    Warrants                                  Options
                                          -----------------------------    ----------------------------------------------
                                             Shares     Exercise Price        Shares      Option price       Weighted
                                                                                            per share        average
                                                                                                          exercise price
                 --------------------------------------------------------------------------------------------------------
<S>                                            <C>      <C>                   <C>         <C>                     <C>
                 Outstanding September
                   30, 1998                    195,864  $ 2.00 - $ 4.25       1,053,400   $ .35 - $ 3.00          $ 2.32

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

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

                    Exercised                        -               -                -                -               -

                    Expired                    (60,000) $ 3.25 - $ 4.25               -                -               -
                 --------------------------------------------------------------------------------------------------------
                 Outstanding September
                   30, 1999                    135,864          $ 2.00          400,500   $ .35 - $ 3.00          $ 1.56

                    Granted                          -               -        1,049,400  $ 1.03 - $ 2.88          $ 1.25

                    Cancelled                        -               -          (12,000) $ 1.06 - $ 2.38          $ 1.92

                    Exercised                        -               -                -                -               -

                    Expired                    (10,864)         $ 2.00                -                -               -
                 --------------------------------------------------------------------------------------------------------
                 Outstanding September
                   30, 2000                    125,000          $ 2.00        1,437,900   $ .35 - $ 3.00          $ 1.34

                    Granted                          -               -          130,000           $ 1.00          $ 1.00

                    Cancelled                        -               -         (112,500) $ 1.06 - $ 2.88          $ 2.76

                    Exercised                        -               -                -                -               -

                    Expired                          -               -                -                -               -
                 --------------------------------------------------------------------------------------------------------
                 Outstanding September
                   30, 2001                    125,000          $ 2.00        1,455,400   $ .35 - $ 3.00           $1.20
                 --------------------------------------------------------------------------------------------------------
                 --------------------------------------------------------------------------------------------------------
</Table>


                 At September 30, 2001, there were 1,386,234 options exercisable
                 at a weighted average exercise price of $1.20. The weighted
                 average fair value of options granted during fiscal 2001
                 was $.82 and $.70 for 2000 and 1999.

12.      COMMITMENTS       The Company has a discretionary 401(k) plan. For the
                           years ended September 30, 2001, 2000 and 1999, the
                           Company contributed $ 110,835, $ 68,363 and
                           $ 26,915, respectively.


                                                                            F-27
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

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

<Table>
<Caption>

                  YEAR ENDED SEPTEMBER 30,                              2001               2000                1999
                  --------------------------------------------------------------------------------------------------
<S>                                                            <C>                    <C>                 <C>
                  Current:
                     Federal                                   $    (854,496)         $ 678,156           $ 359,644
                     State                                           (64,317)            88,967              27,000
                  --------------------------------------------------------------------------------------------------
                  Total current:                                    (918,813)           767,123             386,644
                  --------------------------------------------------------------------------------------------------
                  Deferred:
                     Federal                                      (1,034,000)            58,000             (90,000)
                     State                                           (78,000)             8,000             (17,000)
                  --------------------------------------------------------------------------------------------------
                  Total deferred                                  (1,112,000)            66,000            (107,000)
                  --------------------------------------------------------------------------------------------------
                  Total taxes (benefit) on income               $ (2,030,813)         $ 833,123           $ 279,644
                  --------------------------------------------------------------------------------------------------
                  --------------------------------------------------------------------------------------------------
</Table>


                           Deferred tax (assets) liabilities consist of the
                           following:

<Table>
<Caption>

                           YEAR ENDED SEPTEMBER 30,                               2001                2000
                           -------------------------------------------------------------------------------

<S>                                                                         <C>                <C>
                           Tax depreciation in excess of book               $  914,000         $ 1,013,000

                           Investment tax credit carryforward                  (92,000)           (198,000)

                           Restructuring                                      (145,000)                  -

                           Provision for accounts receivable                   (23,000)            (25,000)

                           Inventory capitalization                            (59,000)            (84,000)

                           Inventory reserve                                         -            (293,000)

                           Accrued bonus                                             -            (141,000)

                           Other temporary differences - net                   (63,000)            (45,000)

                           Net operating loss carryforward                  (1,617,000)                  -

                           Less valuation allowance                            200,000                   -
                           --------------------------------------------------------------------------------

                           Net deferred tax (assets) liabilities            $ (885,000)          $ 227,000
                           --------------------------------------------------------------------------------
                           --------------------------------------------------------------------------------
</Table>

                           The Company has $4,312,000 in NOL carryforwards to
                           offset future taxable income. The NOL will expire in
                           fiscal 2021. The Company has provided a valuation
                           allowance against the portion of the net deferred tax
                           assets that it currently estimates may not be
                           realized.

                                                                            F-28
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


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

<Table>
<Caption>

                    YEAR ENDED SEPTEMBER 30,                              2001                2000               1999
                    --------------------------------------------------------------------------------------------------
<S>                                                               <C>                    <C>                <C>
                    Provision for Federal income taxes at
                      the statutory rates                         $ (1,933,554)          $ 784,658          $ 263,400

                    Increase (decrease):

                       State taxes, net of Federal tax
                          benefit                                     (185,079)             63,998              6,600

                       Change in valuation allowance                   200,000

                       Other                                          (112,180)            (15,533)             9,644
                    --------------------------------------------------------------------------------------------------

                    Provision for taxes on income                 $ (2,030,813)          $ 833,123          $ 279,644
                    --------------------------------------------------------------------------------------------------
                    --------------------------------------------------------------------------------------------------
</Table>


                                                                            F-29
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

14.      CASH FLOWS

<Table>
<Caption>

                  YEAR ENDED SEPTEMBER 30,                              2001               2000                1999
                  --------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>                 <C>
                  Supplemental disclosure of cash flow
                    information

                     Cash paid during the year:

                        Interest                                 $ 1,332,334        $ 1,168,000         $ 1,018,000
                  --------------------------------------------------------------------------------------------------

                        Income taxes                             $   691,480        $   166,100         $    56,380
                  --------------------------------------------------------------------------------------------------
                  --------------------------------------------------------------------------------------------------

                  Supplemental schedule of non-cash
                    investing and financing:

                     Equipment acquired under capital
                        lease                                     $4,153,000         $3,355,000        $    795,000

                     Contingent consideration earned in
                        connection with acquisition paid
                        with debt                                 $3,250,000         $  896,000        $    589,000
</Table>

                           In connection with the Martin Machine, Inc. business
                           acquisition (Note 4), the Company issued $300,000 in
                           notes payable and 100,000 shares of common stock
                           valued at $400,000.

                                                                            F-30
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

15.      SUMMARIZED
         QUARTERLY DATA
         (UNAUDITED)

                           The following is a summary of the quarterly results
                           of operations for the years ended September 30.

<Table>
<Caption>

                                                                     Fiscal Quarter
                                       First            Second            Third            Fourth               Total
------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>               <C>              <C>                   <C>
2001
Net sales                              $ 9,597,119      $ 9,507,643       $ 5,899,929      $ 4,653,572           $ 29,658,263
Gross profit (loss)                      3,130,598        3,005,546         1,278,754       (2,456,893)             4,958,005
Net income (loss)                          444,170          304,887          (518,910)      (3,886,258)            (3,656,111)
Basic income (loss) per share                  .09              .06              (.10)            (.79)                  (.74)
Diluted income (loss) per share                .08              .05              (.10)            (.79)                  (.74)

2000
Net sales                              $ 6,693,487      $ 7,734,983       $ 8,257,086      $ 9,595,867           $ 32,281,423
Gross profit                             2,315,089        2,716,711         2,895,703        3,178,319             11,105,822
Net income                                 255,535          433,143           266,508          519,510              1,474,696
Basic earnings per share                       .05              .09               .05              .11                    .30
Diluted earning per share                      .05              .08               .05              .09                    .27


In the fourth quarter of 2001 the Company made the following adjustments:
$2,718,859 inventory write off, $672,000 accrued restructring expense and $200,000 deferred tax allowance
</Table>

                                                                            F-31
<Page>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                                                     SCHEDULE II

================================================================================

Valuation and Qualifying Accounts

<Table>
<Caption>

For the years ended September 30,
                                         Balance at Beginning of                                              Balance at End
             Description                         Period                Additions          Deductions             of Period
---------------------------------------------------------------------------------------------------------------------------------

<S>                                                   <C>               <C>                  <C>                     <C>
Allowances:

Doubtful accounts:

        2001                                          $ 67,000          $  35,000            $ 42,000                $  60,000

        2000                                            57,000             10,000                   -                   67,000

        1999                                            43,000             24,000              10,000                   57,000

Deferred tax asset allowance:

        2001                                                 -          $ 200,000                   -                $ 200,000

        2000                                                 -                  -                   -                        -

        1999                                                 -                  -                   -                        -
</Table>


                                                                             S-1