<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, 1997.
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 15, 1997, 13,619,644 shares of the registrant's common
stock were outstanding.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of October 31, 1997
and July 31, 1997 2
Condensed Consolidated Statements of Earnings for the three-
month periods ended October 31, 1997 and October 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the three-
month periods ended October 31, 1997 and October 31, 1996 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
</TABLE>
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, July 31,
ASSETS 1997 1997
-------------- ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 324,000 $ 1,193,000
Accounts receivable, net 30,869,000 25,516,000
Inventories 4,659,000 4,380,000
Prepaid expenses 971,000 786,000
Deferred income taxes 2,428,000 3,422,000
----------- -----------
Total current assets 39,251,000 35,297,000
PROPERTY AND EQUIPMENT, net 28,645,000 26,783,000
OTHER ASSETS
Excess of cost over fair value
of net assets acquired, net
of accumulated amortization
of $7,850,000 and $7,204,000
at October 31, 1997 and July
31, 1997, respectively 42,497,000 43,064,000
Deferred charges and other 2,816,000 2,737,000
----------- -----------
45,313,000 45,801,000
----------- -----------
$113,209,000 $107,881,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
October 31, July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
-------------- ----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt and
capitalized lease obligations $ 13,679,000 $ 9,837,000
Accounts payable 17,188,000 14,781,000
Accrued liabilities 7,814,000 6,735,000
------------ ------------
Total current liabilities 38,681,000 31,353,000
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS, less current portion above 23,318,000 26,711,000
SUBORDINATED NOTES PAYABLE TO
STOCKHOLDERS 10,214,000 10,061,000
DEFERRED INCOME TAXES 1,112,000 1,112,000
COMMITMENTS AND CONTINGENCIES
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 44,892,000 44,742,000
Accumulated deficit (5,144,000) (6,234,000)
----------- -----------
39,884,000 38,644,000
----------- -----------
$113,209,000 $107,881,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three-month period ended October 31,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $49,038,000 $42,726,000
Cost of sales 38,828,000 34,127,000
---------- ----------
Gross profit 10,210,000 8,599,000
---------- ----------
Operating expenses
Selling, general and administrative 6,026,000 5,533,000
Amortization of excess of cost over fair
value of net assets acquired 646,000 645,000
----------- ----------
Total operating expenses 6,672,000 6,178,000
----------- ----------
Income from operations 3,538,000 2,421,000
----------- ----------
Other income (expense)
Interest expense (1,298,000) (1,274,000)
Other, net ( 5,000) 43,000
----------- ----------
Total other income (expense) (1,303,000) (1,231,000)
----------- ----------
Income before income taxes 2,235,000 1,190,000
Provision for income taxes 1,145,000 702,000
----------- ----------
NET INCOME $ 1,090,000 $ 488,000
=========== ==========
Earnings per share $0.08 $0.04
==== ====
Weighted average number of common and common
equivalent shares outstanding 13,658,097 13,619,644
========== ==========
</TABLE>
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,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities $ 2,413,000 $ (739,000)
---------- -----------
Cash flows from investing activities
Purchases of property and equipment (3,615,000) (411,000)
---------- -----------
Net cash used in investing activities (3,615,000) (411,000)
---------- -----------
Cash flows from financing activities
Net borrowings under revolving notes 2,746,000 2,643,000
Repayment of long-term debt (4,002,000) (2,282,000)
Borrowings of long-term debt 1,589,000 -
---------- -----------
Net cash provided by financing
activities 333,000 361,000
---------- -----------
Net decrease in cash (869,000) (789,000)
Cash at beginning of period 1,193,000 831,000
---------- -----------
Cash at end of period $ 324,000 $ 42,000
========== ===========
</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, 1997
(unaudited)
NOTE A - BASIS OF PRESENTATION
The condensed consolidated balance sheet as of October 31, 1997 and the
related condensed consolidated statements of earnings and cash flows for
the three-month periods ended October 31, 1997 and 1996 have been prepared
by Allied Digital Technologies Corp. ("Allied Digital"), including the
accounts of its wholly-owned subsidiaries, HMG Digital Technologies Corp.
("HMG") and subsidiary, HRM Holdings Corp. ("Holdings"), and its
wholly-owned subsidiary, Allied Digital, Inc. (formerly known as Hauppauge
Record Manufacturing, Ltd.) ("Allied") (hereinafter referred to
collectively as the "Company") without audit. In the opinion of management,
all adjustments necessary to present fairly the financial position as of
October 31, 1997 and for all periods presented, consisting of normal
recurring adjustments, have been made. Results of operations for the
three-month period ended October 31, 1997 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
post-production 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 note 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 the Company's Form 10-K for the fiscal year ended July 31,
1997.
Certain amounts for the three-month period ended October 31, 1996 have been
reclassified to conform to the current year presentation.
- 6 -
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
October 31, 1997
(unaudited)
NOTE B - INVENTORIES
Inventories consist of the following classifications:
October 31, July 31,
1997 1997
------------ --------
Raw materials $3,938,000 $3,416,000
Work-in-process 403,000 674,000
Finished goods 318,000 290,000
---------- ----------
$4,659,000 $4,380,000
========= =========
NOTE C - LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE AND CAPITALIZED LEASE
OBLIGATIONS
Long-term debt, subordinated notes payable and capitalized lease
obligations consist of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1997 1997
----------- --------
<S> <C> <C>
Loan and Security Agreement
Term loan $ 15,138,000 $ 18,782,000
Revolving loan 17,226,000 14,481,000
Additional term loan 840,000 1,020,000
Capital expenditure loan 1,545,000
Subordinated 10% Notes Payable to Stockholder 7,333,000 7,180,000
Additional Subordinated 10% Notes Payable to Stockholders 2,000,000 2,000,000
Subordinated 11% Series B Notes Payable to Stockholders 881,000 881,000
Note Payable to VCA 1,171,000 1,171,000
Capitalized lease obligations 986,000 995,000
Other 91,000 99,000
----------- -----------
47,211,000 46,609,000
Less current portion (13,679,000) (9,837,000)
----------- -----------
$ 33,532,000 $ 36,772,000
=========== ===========
</TABLE>
- 7 -
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
October 31, 1997
(unaudited)
NOTE C (continued)
Loan and Security Agreement
The October 30, 1996 loan and security agreement provided 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. As of August 19, 1997, Allied entered into an amendment to
the October 30, 1996 loan and security agreement with the bank which
provides the Company with a $3,450,000 capital expenditure credit facility.
The loan and security agreement (as amended) 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 redemptions, (vii) issuance of stock, and
(viii) transactions with affiliates, all as defined in the agreement. As of
October 31, 1997, 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 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 (10% at October 31, 1997). In the
- 8 -
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
October 31, 1997
(unaudited)
NOTE C (continued)
event the loan and security agreement has not been terminated prior to
October 31, 1997, a $125,000 fee to the bank will not be required to be
paid by the Company if on and as of such date no default or event of
default has occurred and is continuing and the
Company has made all principal and interest payments required to be
paid on the term loan when due.
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,
1997, the Company had approximately $3,455,000 unused and available
under the revolving loan facility.
c. Additional Term Loan
The $1,500,000 additional loan dated October 30, 1996 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. In the
event the additional loan is paid in full on or before December 31,
1997 and the loan and security agreement has not been terminated on or
before such date, the Company will not be required to pay a $100,000
fee to the bank on December 31, 1998.
d. Capital Expenditure Credit Facility
The $3,450,000 capital expenditure credit facility provides the Company
with a credit line through July 31, 1998 to finance up to 80% of the
value of capital equipment purchases (as defined). Such loans under the
facility are payable based on a 36-month amortization schedule with a
final payment of the entire unpaid principal balance on July 31, 2000.
These loans bear
- 9 -
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
October 31, 1997
(unaudited)
NOTE C (continued)
interest at 1.5% over the bank's base rate. In addition, the Company is
required to pay a $103,500 fee to the bank, payable at a rate of 3% of
each advance with a final payment for any unpaid amount of the fee
payable on July 31, 1998. As of October 31, 1997, $1,545,000 was
outstanding under this capital expenditure credit facility.
Subordinated 10% Notes Payable to Stockholder
The subordinated 10% notes payable to stockholder are uncollateralized and
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, through October 31, 1997, interest payments were
postponed pursuant to the terms of the loan and security agreement with
the bank. Partial payment of such accrued and unpaid interest becomes
periodically payable to the stockholder and is limited to a stipulated
percentage as defined in the loan and security agreement, provided no
default or event of default has occurred. The remaining portion of the
unpaid interest subject to this payment postponement becomes payable on
January 1, 2001. In accordance with the periodic payment limitation
provisions of the loan and security agreement, the Company paid on December
5, 1997 approximately $316,000 of the accrued interest payable on these
notes.
Additional Subordinated 10% Notes Payable to Stockholders
The additional 10% subordinated notes payable to stockholders 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 loan and security agreement with
the bank.
Subordinated 11% Series B Notes Payable to Stockholders
These uncollateralized notes mature on January 1, 1999 with interest
payable quarterly.
- 10 -
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
October 31, 1997
(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%.
Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for as
capital leases. The obligations for the equipment require the Company to
make monthly payments through December 2002 with implicit interest rates
from 5.27% to 19.48%.
The following is a summary of the aggregate annual maturities of long-term
debt, subordinated notes payable and capitalized lease obligations as of
October 31, 1997:
Twelve months ending October 31,
1998 $13,679,000
1999 7,687,000
2000 1,091,000
2001 24,754,000
----------
$47,211,000
===========
- 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, 1997 compared to
Three Month Period Ended October 31, 1996
Net sales of the Company for the three month period ended October 31, 1997 were
$49.0 million, an increase of $6.3 million, or 15%, compared to the three month
period ended October 31, 1996. There were several factors contributing to this
increase. As the Company continues to penetrate its existing markets, there also
continue to be additions of new customers to its expanding customer base. The
Company has entered into an exclusive CD manufacturing agreement with a new
customer and is currently experiencing favorable growth trends in sales to the
Company's CD Audio and CD ROM customers. The first quarter sales were also
favorably impacted by the one time manufacturing of the Princess Diana "Candle
in the Wind 1997" recording on audiocassette and CD.
The Company's gross profit for the three month period ended October 31, 1997
increased $1.6 million to $10.2 million from $8.6 million for the three month
period ended October 31, 1996. Although the gross profit dollars increased due
to increased sales, the continued unpredictably strong demand for audio units
and the continued demand for CDs exceeded the Company's internal capacity which
caused it to source additional capacity to outside contractors at significantly
lower margins. Despite the impact of this outsourcing, the gross profit as a
percentage of sales increased slightly to 21% for the quarter ended October 31,
1997 from 20% for the quarter ended October 31, 1996. This increase in gross
profit was primarily attributable to the favorable (declining) trend in material
costs as well as fixed costs being spread over higher production volumes.
Operating expenses of the Company for the three month period ended October 31,
1997 were $6.7 million or 14% of sales compared to $6.2 million or 14% of sales
for the three month period ended October 31, 1996. The $0.5 million increase was
primarily the result of additional costs incurred for professional fees, bad
debts and sales commissions and salaries.
The Company's income from operations of $3.5 million for the three month period
ended October 31, 1997 compares to income from operations of $2.4 million for
the three month period ended October 31, 1996.
Non-operating expenses increased to $1.3 million for the three month period
ended October 31, 1997 from $1.2 million for the three month period ended
October 31, 1996.
For the three month period ended October 31, 1997, the Company realized income
before income taxes of $2.2 million, compared to $1.2 million for the three
month period ended October 31, 1996.
A provision for Federal, state and local income taxes of $1.1 million was
recognized for the three months ended October 31, 1997, compared to a provision
of $0.7 million for the three months ended October 31, 1996.
After recognition of applicable income taxes, the Company recognized net income
for the three months ended October 31, 1997 of $1.1 million, compared to $0.5
million for the three months ended October 31, 1996 for the reasons noted above.
Liquidity and Capital Resources
The Company's senior loan and credit facilities are with American
National Bank and Trust Company of Chicago ("ANB"). The October 30, 1996 ANB
loan agreement provides for (i) a revolving loan (the "ANB Revolving Loan") of
$22 million (subject to certain borrowing base limitations based on Allied's
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. As of
August 19, 1997, the Company entered into an amendment to the Loan and Security
Agreement dated October 30, 1996 with ANB which provides the Company with a $3.5
million capital expenditure credit facility (the "ANB CAPEX Loans"). The ANB
Revolving Loan bears interest at the base rate published by ANB plus 1.25%. The
ANB Term Loan, the ANB Additional Loan and the ANB CAPEX Loans bear
- 12 -
<PAGE>
interest at the base rate published by ANB plus 1.50%. At October 31, 1997, the
ANB base rate was 8.50%. The Revolving Facility carries an unused commitment fee
of 0.50%. The obligations of Allied under the ANB Loan Agreement are secured by
a lien on substantially all of Allied's assets.
At October 31, 1997, the aggregate amount of total indebtedness
outstanding of $47.2 million was as follows: (i) the ANB Term Loan, $15.1
million, (ii) the ANB Revolving Loan, $17.2 million, (iii) the ANB CAPEX Loans,
$1.6 million, (iv) the ANB Additional Loan, $0.8 million, (v) the 10% Notes
Payable to Stockholder, $7.3 million, (vi) the Additional Subordinated 10% Notes
Payable to Stockholders, $2.0 million, (vii) the 11% Series B Notes Payable to
Stockholders, $0.9 million, (viii) the Note Payable to VCA (related to the VCA
acquisition), $1.2 million, (ix) capitalized lease obligations, $1.0 million and
(x) other debt of $0.1 million.
The ANB Term Loan is payable in an initial 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 of $273,098 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. In the event the loan and security agreement has not been
terminated prior to October 31, 1997, a $125,000 fee due to the bank from the
Company will not be required to be paid if on and as of such date no default or
event of default has occurred and is continuing and the Company has made all
principal and interest payments required to be paid on the term loan when due.
The ANB Additional Loan is payable in 25 consecutive monthly
installments of $60,000 each which commenced on December 31, 1996. In the event
that the additional loan is paid in full on or before December 31, 1997 and the
loan and security agreement has not been terminated on or before such date, the
Company will not be required to pay a $100,000 fee to the bank on December 31,
1998.
The ANB capital expenditure credit facility provides the Company with a
credit line through July 31, 1998 to finance up to 80% of the value of capital
equipment purchases (as defined). The ANB CAPEX Loans are payable based on a
36-month amortization schedule with a final payment of the entire unpaid
principal balance on July 31, 2000. In addition, the Company is required to pay
a $103,500 fee to ANB, payable at a rate of 3% of each advance with a final
payment for any unpaid amount of the fee payable on July 31, 1998. As of October
31, 1997, $1,545,000 was outstanding under this capital expenditure credit
facility.
The 10% Notes Payable to Stockholder (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. Through October 31, 1997, interest
payments were postponed pursuant to the terms of the loan and security agreement
with ANB. Such partial payment of accrued and unpaid interest becomes
periodically payable to the stockholder, and is limited to a stipulated
percentage as defined in the loan and security agreement, provided no default or
event of default occurred. The remaining portion of the unpaid interest subject
to this payment postponement becomes payable on January 1, 2001. In accordance
with the periodic interest payment limitation provisions of the loan and
security agreement, the Company paid on December 5, 1997 approximately $316,000
of the accrued interest payable on these notes. Payment of these notes is
subordinated to the payment of the obligations under the ANB Loan Agreement. The
notes mature on January 1, 2001.
The Additional Subordinated 10% Notes Payable to Stockholders 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 ANB loan and security agreement.
The Series B Notes Payable to Stockholders are unsecured obligations
which bear interest at 11% per annum, payable quarterly. Payment of these notes
is subordinated to the payment of the obligations under the ANB Loan. The note
matures on January 1, 1999.
- 13 -
<PAGE>
The note payable to VCA is unsecured and is payable in annual
installments beginning January 1995 through January 2001, including annual
interest of 12%.
The capitalized lease obligations represent certain equipment leased by
the Company under agreements accounted for as capital leases. The obligations
for the equipment require the Company to make monthly payments through December
2002 with implicit interest rates from 5.27% to 19.48%.
Proceeds from the ordinary operations of Allied are applied to reduce
the principal amount of borrowings 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. The Company's current cash requirements, including
working capital and capital expenditure requirements, are funded from the
operations and the proceeds of borrowings by Allied under the ANB Loan
Agreement.
As of October 31, 1997, the Company had working capital of $0.6 million
and $3.5 million unused and available under the ANB Revolving Loan. Net cash
provided by operating activities during the three months ended October 31, 1997
was $2.4 million. Net cash used in investing activities totaled $3.6 million, of
which substantially all was used for the purchase of replication equipment and
leasehold improvements.
The Company 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. The
Company incurs approximately $1.5 million per year in cost of sales for
maintenance and repairs.
The Company has not paid any dividends on the Company's Common Stock
since its inception. The payment of dividends, if any, will be contingent upon
the Company's revenues and earnings, if any, capital requirements and general
financial condition. It is the current policy of the Board of the Company, in
view of the Company's contemplated financial requirements, to retain all
earnings, if any, for use in the Company's business operation.
The Company 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 Allied may make to the Company and prohibit the Company from
using any such distributions to pay dividends to its stockholders.
- 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.
Exhibit 11 - Computation of Primary Earnings Per Common
and Common Equivalent Share.
(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 15, 1997 By: /s/ George N. Fishman
-------------------------------------
George N. Fishman
Co-Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: December 15, 1997 By: /s/ Charles A. Mantione
-------------------------------------
Charles A. Mantione
Vice President - Finance
(Principal Financial Officer and Principal
Accounting Officer)
- 16 -
<PAGE>
Allied Digital Technologies Corp. and Subsidiaries
EXHIBIT 11
Computation of Primary Earnings Per Common and Common Equivalent Share
<TABLE>
<CAPTION>
Three-Month Period Ended
---------------------------
October 31,
---------------------------
1997 1996
---------- ----------
Primary earnings per common and common equivalent share:
<S> <C> <C>
Net income $ 1,090,000 $ 488,000
Weighted average number of common shares outstanding 13,619,644 13,619,644
Dilutive effect of common stock equivalents 38,453 --
Weighted average number of common and common ----------- ----------
equivalent shares outstanding 13,658,097 13,619,644
Primary earnings per common and common equivalent shares outstanding $.08 $.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 324,000
<SECURITIES> 0
<RECEIVABLES> 30,869,000
<ALLOWANCES> 0
<INVENTORY> 4,659,000
<CURRENT-ASSETS> 39,251,000
<PP&E> 28,645,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 113,209,000
<CURRENT-LIABILITIES> 38,681,000
<BONDS> 0
0
0
<COMMON> 136,000
<OTHER-SE> 39,748,000
<TOTAL-LIABILITY-AND-EQUITY> 113,209,000
<SALES> 49,038,000
<TOTAL-REVENUES> 49,038,000
<CGS> 38,828,000
<TOTAL-COSTS> 45,500,000
<OTHER-EXPENSES> 5,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,298,000
<INCOME-PRETAX> 2,235,000
<INCOME-TAX> 1,145,000
<INCOME-CONTINUING> 1,090,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,090,000
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.00
</TABLE>
