<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED OCTOBER 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
---------- ----------
Commission file number 1-13580
ALLIED DIGITAL TECHNOLOGIES CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3191597
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
140 Fell Court, Hauppauge, New York 11788
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(516) 232-2323
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has 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 .
--- ---
As of December 16, 1996, 13,619,644 shares of the registrant's common
stock were outstanding.
Total number of pages 17 .
-----
<PAGE>
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of October 31, 1996
and July 31, 1996 2
Condensed Consolidated Statements of Earnings for the three-
month periods ended October 31, 1996 and October 31, 1995 4
Condensed Consolidated Statements of Cash Flows for the three-
month periods ended October 31, 1996 and October 31, 1995 5
Notes to Condensed Consolidated Financial Statements 6 - 11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 14
PART II - OTHER INFORMATION 15
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 31, July 31,
ASSETS 1996 1996
------------ --------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 42,000 $ 831,000
Accounts receivable, net 28,195,000 23,907,000
Inventories 7,458,000 5,374,000
Prepaid expenses 645,000 756,000
Deferred income taxes 2,557,000 3,313,000
------------ ----------
Total current assets 38,897,000 34,181,000
PROPERTY AND EQUIPMENT, net 31,486,000 32,225,000
------------ ----------
OTHER ASSETS
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $5,265,000 and $4,620,000 at October 31,
1996 and July 31, 1996, respectively 44,893,000 45,538,000
Deferred income taxes 708,000 708,000
Deferred charges, deposits and other 1,482,000 1,226,000
------------ ----------
Total other assets 47,083,000 47,472,000
------------ ----------
Total assets $117,466,000 $113,878,000
------------ ----------
------------ ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-2-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
OCTOBER 31, July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
------------- --------------
(UNAUDITED)
CURRENT LIABILITIES
Current maturities of long-term debt $ 10,686,000 $ 9,154,000
Accounts payable 18,619,000 16,806,000
Accrued liabilities 8,822,000 8,712,000
-------------- --------------
Total current liabilities 38,127,000 34,672,000
LONG-TERM DEBT, less current portion above 29,728,000 30,232,000
SUBORDINATED NOTES PAYABLE TO
STOCKHOLDERS 11,146,000 10,997,000
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 1,000 shares
authorized; no shares issued and outstanding - -
Common stock, $0.01 par value; 25,000,000
shares authorized; 13,619,644 shares issued
and outstanding 136,000 136,000
Additional paid-in capital 44,742,000 44,742,000
Accumulated deficit (6,413,000) (6,901,000)
-------------- --------------
Total stockholders' equity 38,465,000 37,977,000
-------------- --------------
Total liabilities and stockholders' equity $117,466,000 $113,878,000
-------------- --------------
-------------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-3-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
THREE-MONTH PERIOD ENDED OCTOBER 31,
------------------------------------
1996 1995
------------ -----------
Net sales $43,329,000 $47,336,000
Cost of sales 34,730,000 37,730,000
------------ -----------
Gross margin 8,599,000 9,606,000
------------ -----------
Operating expenses
Selling, general and administrative 5,533,000 5,962,000
Amortization of excess of cost over fair
value of net assets acquired 645,000 645,000
------------ -----------
Total operating expenses 6,178,000 6,607,000
------------ -----------
Income from operations 2,421,000 2,999,000
------------ -----------
Other income (expense)
Interest expense (1,274,000) (1,432,000)
Other, net 43,000 132,000
------------ -----------
Total other expense (1,231,000) (1,300,000)
------------ -----------
Income before taxes 1,190,000 1,699,000
Provision for income taxes 702,000 848,000
------------ -----------
NET INCOME $ 488,000 $ 851,000
------------ -----------
------------ -----------
Earnings per share $0.04 $0.06
------------ -----------
------------ -----------
Weighted average number of common shares
outstanding 13,619,644 13,619,644
------------ -----------
------------ -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-4-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED OCTOBER 31,
------------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities $ (739,000) $ 3,880,000
---------- ---------
Cash flows from investing activities
Purchases of and deposits on property and equipment (411,000) (6,176,000)
Proceeds from sale of property and equipment -- 76,000
---------- ---------
Net cash used in investing activities (411,000) (6,100,000)
---------- ---------
Cash flows from financing activities
Net borrowings under revolving notes 2,643,000 992,000
Repayment of long-term debt (2,282,000) (1,360,000)
Borrowings of long-term debt and subordinated
notes payable to stockholders -- 2,972,000
---------- ---------
Net cash provided by financing
activities 361,000 2,604,000
---------- ---------
Net increase (decrease) in cash (789,000) 384,000
Cash and cash equivalents, at beginning of period 831,000 559,000
---------- ---------
Cash and cash equivalents, at end of period $ 42,000 $ 943,000
---------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-5-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
October 31, 1996
(unaudited)
NOTE A - BASIS OF PRESENTATION
The condensed consolidated balance sheet as of October 31, 1996 and the
related condensed consolidated statements of earnings for the three-month
periods ended October 31, 1996 and 1995 and the condensed consolidated
statements of cash flows for the three-month periods ended October 31, 1996
and 1995 have been prepared by Allied Digital Technologies Corp. ("Allied
Digital"), including the accounts of its wholly-owned subsidiaries, Allied
Film Laboratories, Inc. ("AFL") and HMG Digital Technologies Corp. ("HMG")
and subsidiary, HRM Holdings Corp. ("Holdings"), and its wholly-owned
subsidiary, Hauppauge Record Manufacturing, Ltd. ("Hauppauge Record")
(hereinafter referred to collectively as the "Company") without audit. On
November 1, 1996, AFL merged with and into Hauppauge Record. In the opinion
of management, all adjustments necessary to present fairly the financial
position as of October 31, 1996 and for all periods presented, consisting
of normal recurring adjustments, have been made. Results of operations for
the three-month periods ended October 31, 1996 and 1995 are not necessarily
indicative of the operating results expected for the full year.
The Company (i) provides videocassette duplication and fulfillment services
in addition to processing and duplicating commercial film and offering
postproduction services, and (ii) replicates cassette tapes, VHS videotapes
and compact discs under production contracts with companies primarily in
the recorded music industry.
These statements have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. These
condensed consolidated financial statements should be read in conjunction
with the annual audited consolidated financial statements and the
accompanying notes included in Allied Digital's Form 10-K for the fiscal
year ended July 31, 1996.
-6-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
(unaudited)
NOTE B - INVENTORIES
Inventories consist of the following classifications:
OCTOBER 31, July 31,
1996 1996
----------- --------
Raw materials $5,971,000 $3,882,000
Work-in-process 1,082,000 827,000
Finished goods 405,000 665,000
----------- --------
$7,458,000 $5,374,000
----------- --------
----------- --------
NOTE C - LONG-TERM DEBT AND SUBORDINATED NOTES PAYABLE
Long-term debt and subordinated notes payable consist of the following:
OCTOBER 31, July 31,
1996 1996
----------- --------
Loan and Security Agreement
Term loan $ 24,894,000 $27,112,000
Revolving loan 13,198,000 10,559,000
Subordinated 10% Notes Payable to
Stockholders 6,729,000 6,580,000
Subordinated 12% Series A Note Payable to
Stockholder 3,500,000 3,500,000
Subordinated 11% Series B Notes Payable to
Stockholders 917,000 917,000
Note Payable to VCA 1,389,000 1,389,000
Other 933,000 326,000
----------- --------
51,560,000 50,383,000
Less current portion (10,686,000) (9,154,000)
----------- --------
----------- --------
$ 40,874,000 $41,229,000
----------- --------
----------- --------
-7-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
(unaudited)
NOTE C (CONTINUED)
DEBT REFINANCINGS
In conjunction with the Company's restructuring plan and merger of AFL into
Hauppauge Record referred to in Note A above, (i) the separate senior loan
credit facilities previously maintained by AFL and Hauppauge Record with a
bank were combined under an amended and restated loan and security
agreement between Hauppauge Record and such bank dated as of October 30,
1996 and effectuated as of November 1, 1996, (ii) the Subordinated 12%
Series A Note Payable to Stockholder was repaid in full on November 8, 1996
with funds of (a) $1.5 million available as an additional loan under the
October 30, 1996 amended and restated loan and security agreement and (b)
$2 million advanced by certain other stockholders in the form of additional
subordinated notes dated October 30, 1996 and (iii) the payment terms of
the Subordinated 10% Notes Payable to Stockholders having an original
principal sum of $6,000,000, plus unpaid interest thereon of $729,444
through October 30, 1996 ($579,726 as of July 31, 1996), were extended.
As a result of these subsequent to year/quarter-end debt refinancings, the
Company has classified its debt outstanding in the accompanying
consolidated balance sheets as of October 31, 1996 and July 31, 1996 in
accordance with the terms of the new debt agreements.
LOAN AND SECURITY AGREEMENT
The October 30, 1996 loan and security agreement provides the Company with
borrowings of up to $48,910,169 under credit facilities consisting of a (i)
$25,410,169 term loan, (ii) $22,000,000 revolving loan facility (combined
with a $1,500,000 letter of credit facility) and (iii) $1,500,000
additional loan.
The loan and security agreement is collateralized by substantially all of
the assets of the Company. The agreement contains covenants which, among
other matters, (1) require the Company to (i) maintain increasing levels of
net worth, (ii) maintain a minimum debt service ratio and (iii) limit its
annual capital expenditures, and (2) place limitations on (i) additional
indebtedness, encumbrances and guarantees, (ii) consolidations, mergers or
acquisitions, (iii) investments or loans, (iv) disposal of property, (v)
compensation to officers and others, (vi) dividends and stock
-8-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
(unaudited)
NOTE C (CONTINUED)
redemptions, (vii) issuance of stock, and (viii) transactions with
affiliates, all as defined in the agreement. As of October 31, 1996, there
is no equity available for the payment of dividends to stockholders. The
agreement also contains provisions for fees payable to the bank upon
prepayment and an increased rate of interest during periods of default. The
term of this agreement extends to November 30, 2000.
a. TERM LOAN
The $25,410,169 term loan dated October 30, 1996 ($27,112,055 at July
31, 1996) is payable in an initial scheduled installment aggregating
$1,695,462 on October 31, 1996 (of which $1,179,000 was paid on
November 8, 1996), 30 consecutive monthly installments of $548,054
thereafter through April 30, 1999 and a final installment on May 30,
1999 of $273,098 together with additional prepayments of principal of
$2,000,000 on October 31, 1997 and $5,000,000 on October 31, 1998. No
prepayment fees result from these scheduled prepayments. In addition,
interest is payable monthly at 1.5% over the bank's base rate (9.75%
at October 31, 1996).
b. REVOLVING LOAN
Under the revolving loan facility combined with a $1,500,000 letter of
credit facility, the Company may borrow up to a maximum of $22,000,000
based upon a percentage of accounts receivable and inventory, as
defined, less the sum of the undrawn face amount of any letters of
credit outstanding. Interest is payable monthly at 1.25% over the
bank's base rate. In addition, the Company is required to pay, on a
monthly basis, an unused facility fee of .5% per annum. At October 31,
1996, the Company had approximately $5,594,000 unused and available
under the revolving loan facility.
c. ADDITIONAL LOAN
The $1,500,000 additional loan dated October 30, 1996 (see debt
refinancings above) is payable in 25 consecutive monthly installments
commencing December 31, 1996 of $60,000 each plus interest at 1.5%
over the bank's base rate.
-9-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
(unaudited)
NOTE C (CONTINUED)
SUBORDINATED 10% NOTES PAYABLE TO STOCKHOLDERS
The $6,729,444 subordinated 10% notes payable to stockholders dated October
30, 1996 ($6,579,726 at July 31, 1996) are payable in full on January 1,
2001. Interest accrues only on the original principal sum of $6,000,000 and
is payable quarterly at 10% per annum (12% upon default); however, to the
extent interest is not permitted to be paid pursuant to the terms of the
amended and restated loan and security agreement with the bank, such
accrued and unpaid interest becomes payable on January 1, 2001.
SUBORDINATED 11% SERIES B NOTES PAYABLE TO STOCKHOLDERS
These uncollateralized notes mature on January 1, 1999 with interest
payable quarterly.
ADDITIONAL 10% SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS
The $2,000,000 additional 10% subordinated notes payable to stockholders
dated October 30, 1996 (see debt refinancings above) are uncollateralized
and payable in full on December 31, 1998 with interest payable quarterly;
however, payment of principal and interest may be extended in full or in
part to January 1, 2001 to the extent not permitted to be paid pursuant to
the terms of the amended and restated loan and security agreement with the
bank.
-10-
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
(unaudited)
NOTE C (CONTINUED)
NOTE PAYABLE TO VCA
This uncollateralized note is payable in annual installments of $385,374
beginning January 1995 through January 2001, including interest at 12%.
The following is a summary of the aggregate annual maturities of long-term
debt and subordinated notes payable as of October 31, 1996:
Twelve months ending October 31,
1997 $10,686,000
1998 12,752,000
1999 7,241,000
2000 487,000
2001 20,394,000
-----------
$51,560,000
-----------
-----------
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTH PERIOD ENDED OCTOBER 31, 1996 COMPARED TO
THREE MONTH PERIOD ENDED OCTOBER 31, 1995
Net sales of Allied Digital for the three month period ended October 31, 1996
were $43.3 million, a decrease of $4.0 million, or 8%, compared to the three
month period ended October 31, 1995. Such decrease was primarily attributable
to a large promotional video sale to one customer which was recorded as of
October 31, 1995.
Allied Digital's gross margin for the three month period ended October 31, 1996
decreased $1.0 million to $8.6 million from $9.6 million for the three month
period ended October 31, 1995. Although the gross margin dollars decreased due
to reduced sales, the Company was still able to maintain the same gross margin
percentage, 20% of net sales, primarily through various cost reduction programs.
Operating expenses of Allied Digital for the three month period ended October
31, 1996 were $6.2 million or 14% of sales compared to $6.6 million or 14% of
sales for the three month period ended October 31, 1995. The $0.4 million
decrease was primarily the result of the integration of the legal, financial and
accounting processes.
Allied Digital's income from operations of $2.4 million for the three month
period ended October 31, 1996, compares to income from operations of $3.0
million for the three month period ended October 31, 1995.
For the three month period ended October 31, 1996, Allied Digital realized
income before taxes of $1.2 million, compared to $1.7 million for the three
month period ended October 31, 1995.
A provision for Federal, state and local income taxes of $0.7 million was
recognized for the three months ended October 31, 1996, compared to a provision
of $0.8 million for the three months ended October 31, 1995.
After recognition of applicable income taxes, Allied Digital recognized net
income for the three months ended October 31, 1996 of $0.5 million, compared to
$0.9 million for the three months ended October 31, 1995 for the reasons noted
above.
LIQUIDITY AND CAPITAL RESOURCES
In conjunction with Allied Digital's restructuring plan and merger of
Allied Film Laboratory, Inc. a Michigan corporation and wholly - owned
subsidiary of Allied Digital ("AFL) into Hauppauge Record Manufacturing Ltd., a
New York corporation and indirect wholly - owned subsidiary of Allied Digital
("Hauppauge Records"), the separate senior loan credit facilities previously
maintained by AFL and Hauppauge Records with American National Bank & Trust
Company of Chicago ("ANB") were combined under an amended and restated loan and
security agreement dated as of October 30, 1996 between Hauppauge Records and
ANB and effectuated November 1, 1996 (the "ANB Loan Agreement"). The ANB Loan
Agreement provides for (i) a revolving loan (the "ANB Revolving Loan") of $22
million (subject to certain borrowing base limitations based on Hauppauge
Records' accounts receivable and inventory), which revolving loan includes a
$1.5 million letter of credit facility, (ii) a term loan (the "ANB Term Loan")
in the original principal amount of $25.4 million and (iii) an additional loan
(the "ANB Additional Loan") in the original principal amount of $1.5 million.
The ANB Revolving Loan bears interest at the base rate published by ANB plus
1.25%. The ANB Term Loan and the ANB Additional Loan bear interest at the base
rate published by ANB plus 1.50%. At October 31, 1996, the ANB base rate was
8.25%. The Revolving Facility carries an unused commitment fee of 0.50%. The
obligations of
12
<PAGE>
Hauppauge Records under the ANB Loan Agreement are secured by a lien on
substantially all of Hauppauge Records' assets.
At October 31, 1996, the aggregate amount of total indebtedness outstanding
of $51.5 million was as follows: (i) under the ANB Term Loan, $24.9 million,
(ii) under the ANB Revolving Loan, $13.2 million, (iii) the 10% Notes Payable to
Stockholders, $6.7 million, (iv) the 12% Series A Note Payable to Stockholder,
$3.5 million, (v) the 11% Series B Notes Payable to Stockholders, $0.9 million,
(vi) the Note Payable to VCA Teletronics Inc. ("VCA") (related to Allied
Digital's acquisition of certain assets and assumption of certain liabilities of
VCA effective January 12, 1993), $1.4 million and (vii) other debt of $0.9
million.
The ANB Term Loan was payable in an inital scheduled installment
aggregating $1,695,462 on October 31, 1996 (of which $1,179,000 was paid on
November 8, 1996), 30 consecutive monthly installments of $548,054 each
thereafter through April 30, 1999 and a final installment of $293,098 on May 30,
1999, together with additional prepayments of principal of $2,000,000 on October
31, 1997 and $5,000,000 on October 31, 1998. No prepayment fees result from
these scheduled prepayments.
The 10% Notes Payable to Stockholders (the "10% Notes") are unsecured
obligations which bear interest at 10% per annum. Interest accrues only on the
original principal sum of $6.0 million and is payable quarterly. Upon default,
the interest rate increases to 12% per annum. To the extent interest is not
permitted to be paid pursuant to the terms of the ANB Loan Agreement, such
accrued and unpaid interest becomes payable on January 1, 2001. Payment of
these notes is subordinated to the payment of the obligations under the ANB Loan
Agreement. The notes mature on January 1, 2001.
In connection with the Company's restructuring and merger referred to
above, the Subordinated 12% Series A Note Payable to Stockholder was repaid in
full on November 8, 1996 with the $1.5 million proceeds of the Additional Loan
and $2 million advanced by certain other stockholders in the form of additional
subordinated notes dated October 30, 1996. Additionally, the payment terms of
the 10% Notes having an original principal sum of $6 million, plus unpaid
interest thereon of $0.7 million through October 30, 1996 ($0.6 million as of
July 31, 1996), were extended to 2001.
The Series B Notes Payable to Stockholders are unsecured obligations which
bear interest at 11% per annum, payable quarterly. Payment of these notes are
subordinated to the payment of the obligation under the ANB Loan. The notes
mature on January 1, 1999.
The note payable to VCA is unsecured and is payable in annual installments
beginning January 31, 1995 through January 1, 2001, including annual interest of
12%.
Proceeds from the ordinary operations of Hauppauge Records are applied to
reduce the principal amount of borrowing outstanding under the ANB Loan
Agreement. Unused portions of the Revolving Loan may be borrowed and
reborrowed, subject to availability in accordance with the then applicable
commitment and borrowing limitations.
The ANB Loan Agreement contains covenants which, among other things, (a)
require the Company to (i) maintain increasing levels of net worth, (ii)
maintain minimum debt service ratios and (iii) limit its annual capital
expenditures, and (b) place limitations on (i) additional indebtedness,
encumbrances and guarantees, (ii) consolidations, mergers or acquisitions, (iii)
investments or loans, (iv) disposal of property, (v) compensation to officers
and others, (vi) dividends and stock redemptions, (vii) issuance of stock, and a
(viii) transactions with affiliates, all as defined in the ANB Loan Agreement.
CASH REQUIREMENTS. Allied Digital's current cash requirements, including
working capital and capital expenditure requirements, are funded from the
operations and the proceeds of borrowing by Hauppauge Records under the ANB Loan
Agreement.
13
<PAGE>
As of October 31, 1996, the Company had a net working capital surplus of
$0.8 million and $5.6 million unused and available under the ANB Revolving Loan.
Net cash used in operating activities during the three months ended October 31,
1996 was $0.7 million. Net cash used in investing activities totaled $0.4
million, of which substantially all was used for the purchase of replication
equipment.
Allied Digital currently expects that capital expenditures will be divided
primarily between maintenance capital expenditures and capital projects.
Maintenance capital expenditures include those required to maintain production
performance, while capital projects relate primarily to extending the life of
existing equipment, increasing capacity and decreasing production costs. Allied
Digital incurs approximately $1.5 million per year in cost of sales for
maintenance and repairs.
Allied Digital has not paid any dividends on the Allied Digital Common
Stock since its inception. The payment of dividends, if any, will be contingent
upon Allied Digital's revenues and earnings, if any, capital requirements and
general financial condition. It is the current policy of the Allied Digital
Board, in view of Allied Digital's contemplated financial requirements, to
retain all earnings, if any, for use in Allied Digital's business operations.
Allied Digital is a legal entity separate and distinct from its
subsidiaries. As a holding company with no significant operations of its own,
the principal sources of its funds will be dividends and other distributions
from its operating subsidiary, borrowings and sales of equity. Restrictions
contained in the ANB Loan Agreement impose limitations on the amount of
distributions that Hauppauge Records may make to Allied Digital and prohibit
Allied Digital from using any such distributions to pay dividends to its
stockholders.
IMPACT OF INFLATION
During recent years, Allied Digital has experienced decreasing margins as a
result of competitive pressures in its market segment. Allied Digital believes
that, historically, the decline in its margins has been partially offset by
increases in volume as well as decreases in the cost of components.
Allied Digital from time to time experiences increases in the costs of
material and labor, as well as other manufacturing and operating expenses.
Allied Digital's ability, consistent with that of its competitors, to pass along
such increased costs through increased prices has been difficult due to
competitive pressures. By attempting to control costs, Allied Digital attempts
to minimize any effects of inflation on its operations.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS - NOT APPLICABLE
Item 2. - CHANGES IN SECURITIES - NOT APPLICABLE
Item 3. - DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
NOT APPLICABLE
Item 5. - OTHER INFORMATION - NOT APPLICABLE
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable.
(b) No Report on Form 8-K has been filed during the quarter
for which this report on Form 10-Q is being filed.
15
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALLIED DIGITAL TECHNOLOGIES CORP.
DATE: DECEMBER 16, 1996 BY:
-------------------------------------
George N. Fishman
Co-Chairman and Chief Executive Officer
(Principal Executive Officer)
DATE: DECEMBER 16, 1996 BY:
-------------------------------------
Charles P. Kavanagh
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 42,000
<SECURITIES> 0
<RECEIVABLES> 28,195,000
<ALLOWANCES> 0
<INVENTORY> 7,458,000
<CURRENT-ASSETS> 38,897,000
<PP&E> 31,486,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 117,466,000
<CURRENT-LIABILITIES> 38,127,000
<BONDS> 0
0
0
<COMMON> 136,000
<OTHER-SE> 38,329,000
<TOTAL-LIABILITY-AND-EQUITY> 117,466,000
<SALES> 43,329,000
<TOTAL-REVENUES> 43,329,000
<CGS> 34,730,000
<TOTAL-COSTS> 40,908,000
<OTHER-EXPENSES> (43,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,274,000
<INCOME-PRETAX> 1,190,000
<INCOME-TAX> 702,000
<INCOME-CONTINUING> 488,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 488,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0
</TABLE>
