<PAGE>


                          SECURITIES AND EXCHANGE COMMISSION

                               Washington, D. C. 20549
                                     Form 10-QSB
                                      Quarterly
                     Report Pursuant to Section 13 or 15(d) of the
                           Securities Exchange Act of 1934


For the period ended September 30, 1997 Commission file number 0-12705


                          APPLIED DATA COMMUNICATIONS, INC.
                (Exact name of registrant as specified in its charter)


               DELAWARE                                93-2828385
(State or other jurisdiction)                (I. R. S. Employer  Identification
of incorporation or organization)                        Number)


               3324 SOUTH SUSAN ST, SANTA ANA, CALIFORNIA                92704
Address of principal executive offices                                (Zip Code)

Registrant's telephone number, including area code:  714-668-5200

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

Number of shares outstanding as of September 30, 1997: Common Stock, $.01 par
value 9,951,835 shares.



                                     -1-

<PAGE>

                                        INDEX

                                                                            PAGE
--------------------------------------------------------------------------------

PART I.   FINANCIAL INFORMATION

    Item 1.   Financial Statements                                   

              Statement Regarding Financial Information                        3

              Balance Sheets September 30, 1997 (unaudited) 
              and March 31, 1997 (audited)                                     4

              Statements of Operations (unaudited) for the Six Months
              ended September 30, 1997, and September 30, 1996                 5

              Statements of Cash Flows (unaudited) for the Six Months         
              ended September 30, 1997, and September 30, 1996                 6

              Condensed Notes to Financial Statements                          7

    Item 2.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                        8


PART II   OTHER INFORMATION                                                   12

              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


SIGNATURES                                                                    13



                                       -2-

<PAGE>


                          APPLIED DATA COMMUNICATIONS, INC.
                                           
                                     FORM 10-QSB
                                           
PART I  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

The consolidated financial statements included herein have been prepared by 
Applied Data Communications, Inc. ("ADC" or the "Company"), without audit, 
pursuant to the rules and regulations of the Securities and Exchange 
Commission. Certain information normally included in the consolidated 
financial statements prepared in accordance with generally accepted 
accounting principles has been omitted pursuant to such rules and 
regulations.  However, the Company believes that the disclosures are adequate 
to make the information presented not misleading.  It is suggested that the 
financial statements be read in conjunction with the financial statements and 
notes thereto included in the Company's annual report on Form 10-KSB for the 
fiscal year ended March 31, 1997 as filed with the Securities and Exchange 
Commission.

                                      -3-
<PAGE>

                          APPLIED DATA COMMUNICATIONS, INC.

                              STATEMENT OF OPERATIONS
                            ---------------------------

                      FOR THE PERIODS ENDED SEPTEMBER 30, 1997
                      ----------------------------------------
                              AND SEPTEMBER 30, 1996
                              ----------------------

<TABLE>
<CAPTION>

                                            Three Months Ended                Six Months Ended
                                                September 30,                   September 30,
                                          -----------------------          -----------------------
                                            1997             1996            1997            1996
                                         ----------       ----------      ----------      ----------
<S>                                      <C>              <C>             <C>             <C>
REVENUES                                    $ 85,525         $ 76,390        $ 208,352       $ 181,004

COSTS AND EXPENSES   
Costs of sales                                62,762           60,565          150,666         158,854
Selling, general and administrative          213,922          152,628          504,194         338,741

                                         -----------------------------     ----------------------------
                                             276,684          213,193          654,860         497,595 
OTHER INCOME

Interest (income)/expense, net                77,787           67,932          179,265         128,033
                                         -----------------------------     ----------------------------
                                              77,787           67,932          179,265         128,033

INCOME (LOSS) BEFORE PROVISION 
(BENEFIT) FOR INCOME TAXES                  (268,946)        (204,735)        (625,773)       (444,624)

PROVISION (BENEFIT) FOR INCOME TAXES                                                 0               0
      
                                         -----------------------------     ----------------------------

NET INCOME (LOSS)                          ($268,946)       ($204,735)       ($625,773)      ($444,624)
                                         -----------------------------     ----------------------------
                                         -----------------------------     ----------------------------

EARNINGS (LOSS) PER COMMON SHARE              ($0.03)          ($0.03)          ($0.06)         ($0.05)
                                         -----------------------------     ----------------------------
                                         -----------------------------     ----------------------------


WEIGHTED AVERAGE COMMON SHARES             9,951,835        8,161,300        9,951,835       8,161,300
OUTSTANDING                              -----------------------------     ----------------------------
                                         -----------------------------     ----------------------------

</TABLE>


     The accompanying notes are an integral part of these financial statements.

<PAGE>

                       APPLIED DATA COMMUNICATIONS, INC.
                                       
                                 BALANCE SHEETS
                     SEPTEMBER 30, 1997 AND MARCH 31, 1997
                     -------------------------------------

<TABLE>
<CAPTION>
                    ASSETS
                    ------
                             September 30   March 31     
                                 1997         1997       
                              ---------------------------
                              (Unaudited)  (Unaudited)   
<S>                           <C>          <C>       
CURRENT ASSETS                                           
 Cash                               $38,999       $9,113 
 Accounts receivable                 60,384       79,498 
 Inventory                            1,686        8,375 
 Prepaid expenses                    35,559        4,625 


                               --------------------------
Total current assets                136,628      101,611 


                                                         
EQUIPMENT                            13,883       27,839
 Net of accumulated amortization                         
 of $90,892 and $76,936 at                               
 September 30, 1997 and                                  
 March 31, 1997                                          
                                                         
                                                         
                                                         
                                                         
                                                         
OTHER ASSETS                                             
 Other                                    0            0 
                                                         
                                                         
                                                         
                                                         
                                                         
                                                         
                                                         

                                                         
                                                         
                                                         
                                                         
                                                         
                               --------------------------
TOTAL ASSETS                       $150,511     $129,450 
                               --------------------------
                               --------------------------
</TABLE>

<TABLE>
<CAPTION>

                 LIABILITIES AND STOCKHOLDERS EQUITY
                 -----------------------------------
                                                                         
                                              September 30    March 31   
                                                  1997           1997    
                                            ---------------------------- 
                                              (Unaudited)    (Unaudited) 
<S>                                         <C>              <C>         
CURRENT LIABILITIES                                                      
 Accounts payable                                 $381,410      $482,044 
 Accrued expenses                                1,689,548     1,451,903 
 Bank debt                                         368,576       442,803 
 Notes Payable                                   3,116,035     2,712,485 
                                                                         
                                                                         
                                             --------------------------- 
 Total current liabilities                       5,555,569     5,089,235 
                                                                         
                                                                         
COMMITMENTS AND CONTINGENCIES                                            
                                                                         
STOCKHOLDERS' DEFICIT:                                                   
 Preferred stock, Series A, $.01 par value,                               
 Authorized 500,000 shares                                               
 Issued and outstanding, 122,890 and 80,790                              
 shares at June 30, 1997 and March 31, 1997         1,169           808  
Preferred stock, Series B, $.01 par value,                               
 Authorized 200,000 shares                                               
 Issued and outstanding, 15,370 and 0 shares                             
 at June 30, 1997 and March 31, 1997                  154           154  
Preferred stock, Series C, $.01 par value,                               
 Authorized 200,000 shares                                               
 Issued and outstanding, 68,404 and 0 shares                             
 at June 30, 1997 and March 31, 1997                  684           684  
Common stock, $.01 par value-                                            
 Authorized 10,000,000 shares                                            
 Issued and outstanding--                          99,518        99,518  
 9,951,835 and 8,161,341 shares at                                       
 June 30, 1997 and March 31, 1997                                        
                                                                         
Additional paid-in capital, preferred stock     2,119,443     1,939,304  
Additional paid-in capital, common stock        9,839,797     9,839,797  
Accumulated deficit                           (17,465,823)  (16,840,050) 
                                              -------------------------- 
                                               (5,405,058)   (4,959,785) 

TOTAL LIABILITIES AND EQUITY                     $150,511      $129,450  
                                             --------------------------- 
                                             --------------------------- 
</TABLE>
                                       
            The accompanying notes are an integral part of these statements.


<PAGE>

                               APPLIED DATA COMMUNICATIONS, INC.

                                   STATEMENTS OF CASH FLOWS
              FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
              ------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                 1997            1996
                                                             ------------    ------------
<S>                                                          <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net Loss                                                      (625,773)       (444,624)
 Adjustments to reconcile net loss to net 
   cash used for operating activities   
    Depreciation and amortization                                13,956          15,834
    Stock issued for services rendered                                0               0
    Changes in assets and liabilities   
      (Increase)/decrease in accounts receivable                 19,114          75,663
      (Increase)/decrease in inventories                          6,689          37,547
      (Increase)/Decrease in prepaid expenses                   (30,934)        (13,745)
      Increase/(decrease) in accounts payable                  (100,634)        (50,123)
      Increase/(decrease) in accrued expenses                   237,645        (174,903)

                                                            ------------    ------------
Net cash used for operating activities                        (479,937)       (554,351)

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property and equipment                                 0          (1,368)

                                                            ------------    ------------
  Net cash used in investing activities                              0          (1,368)

CASH FLOWS FROM FINANCING ACTIVITIES 
 Increase/(decrease) in long term debt, notes payable          403,550      (2,569,494)
 Borrowing/(repayment) of bank loans                           (74,227)        164,081
 Net proceeds from issuance of common stock                          0       2,947,521
 Net proceeds from issuance of preferred stock                 180,500          17,275
                                                            ------------    ------------
  Net cash provided by financing activities                    509,823         559,383
                                                            ------------    ------------
INCREASE/(DECREASE) IN CASH AND EQUIVALENTS                     29,886           3,664

CASH AND EQUIVALENTS, beginning of period                        9,113           2,974
                                                            ------------    ------------
CASH AND EQUIVALENTS, end of period                             38,999           6,638
                                                            ------------    ------------
                                                            ------------    ------------
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

Supplemental Disclosures
Cash paid during the period for interest                       $71,505        $20,033

</TABLE>

               The accompanying notes are an integral part of these statements.

<PAGE>


                          Applied Data Communications, Inc.
                                           

                 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           
                                  SEPTEMBER 30, 1997
                                           
                                     (UNAUDITED)
                                           

1.  MANAGEMENT OPINION
In the opinion of management, the financial statements reflect all 
adjustments (which include only normal recurring adjustments) necessary to 
present fairly the financial position and results of operations as of and for 
the periods presented.

2.  ACCOUNTING POLICIES
The Company's accounting policies are as stated in its annual report on Form 
10-KSB, dated March 31, 1997.  

3.  PREFERRED STOCK SALE
In October 1996, the Company initiated a private placement offering of 
preferred stock, "Series A", as disclosed in its annual report on Form 
10-KSB, for the year ended March 31, 1997.  The Company is continuing this 
offering currently, and received $180,500 during the six months ended 
September 30, 1997.

4.  GOING CONCERN
The accompanying financial statements have been prepared assuming the Company 
will continue as a going concern. The Company has reported significant losses 
for the last several years and revenues from existing products do not provide 
sufficient cash to cover current operating needs.  The Company has 
increasingly relied on related party borrowings to meet obligations and all 
of these borrowings are past due.  

The Company has been engaged in continuous efforts to formulate a 
restructuring plan.  Management is in the process of adding CD-ROM 
manufacturing and duplication services to its product line.  Additionally, 
the Company is taking measures to increase revenues of its existing products 
and services.  Management is (i) attempting to raise additional funds through 
a private placement of the Company's Series A preferred stock, and additional 
borrowings will be used, in part, to purchase new machinery used in the 
CD-ROM process and (ii) continuing to institute operational changes intended 
to lower operating costs and limit corporate overhead.  The impact of these 
measures and changes will not be realized until the third quarter of fiscal 
1997, at the earliest.



                                      7
<PAGE>


                          APPLIED DATA COMMUNICATIONS, INC.

                                  SEPTEMBER 30, 1997

                                           
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996. 

REVENUES
Revenues for the three months ended September 30, 1997 were $85,525, up 
$9,135 (11.9%) from $76,390 reported in the comparable period of 1996.  These 
volume levels reflect continued evolution of the software duplication 
industry toward distribution on CD-ROM (vs distribution on diskette), lower 
pricing for diskettes, and increasing competition among firms continuing to 
provide software duplication only on diskette.  

Results for the current period reflect primarily that for duplication on 
diskette (59.3%) and fulfillment activity (7.34%), while those for the 
comparable period for the prior year included duplication sales (54.9%) and 
service (maintenance) sales (23.8%).  Average revenue per invoice was $566.39 
in the current year compared to $596.80 in the prior year.  Indicated revenue 
figures include maintenance billings for prior year equipment sales of 
$13,176 in the current year, vs $18,161 previously.  

Management had anticipated the trend toward CD-ROM based distribution and 
believes the competitive position of "diskette only" duplicators will 
continue to erode.  Conversely, it believes that a substantial market niche 
is available for "independent" (non-captive) software duplicators whose 
capabilities include CD-ROM, diskette/tape, and packaging/"fulfillment".  
Consequently, ADC is expediting efforts, begun in 1995, to enter this field 
and believes such expanded capability will generate opportunities for 
expanded business in all its product/service lines of business.  ADC is 
completing negotiations with vendors and financing sources to acquire 
necessary equipment for CD-ROM manufacture.  It has also advised its 
customers and prospects of such plans.


COST OF SALES
Cost of sales were $62,762 or 73.4% of revenues.  This compares to $60,565 in 
the comparable period in the prior year, or 79.3% of revenues.  The lower 
percentage amount in the current year reflects lower materials costs in the 
current year, with proportionately more sales related to maintenance 
contracts. Direct costs including labor, diskettes, labels and similar items, 
plus depreciation, as a percent of non maintenance sales was 45% of such 
sales vs 50% in the prior year. 

OPERATING EXPENSES, INTEREST AND FINANCING EXPENSE
Operating expenses were $213,922 (250.1% of sales), a increase of $61,294 
(40.2%) from the $152,628 (199.8% of sales) reported during the comparable 
quarter in the prior fiscal year.  Higher operating expenses in the current 
period relate primarily to legal and audit costs including 



                                       8
<PAGE>

those related to the Company's current private placement and audit, outside 
professional expenses and expenses.related to the Company's relocation. 

Financing expense in the current period was $77,787 compared with $67,932 for 
the comparable period in the prior year.  The increase of $9,855  (14.5%) 
reflects the higher average borrowings for the Company's accounts receivable 
financing and that related to its bridge loan, obtained in May.

NET LOSS
The Company had a loss of $268,946 (314.5% of sales) for the period as 
compared to a loss of $204,735 (268.0% of sales) for the same period last 
year.  This equates to losses of $.03 and $.03 per share respectively, for 
the same periods. The higher loss (in both dollars and as a percent of sales) 
in the current period occurred because higher product margins were more than 
offset by higher administrative and financing costs.  The loss per common 
share includes the effect of  an increase in the weighted average number of 
shares of approximately 1.8 million, related to conversion of certain debts 
to common stock in October of 1996.



SIX MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996.

REVENUES
Revenues for the six months ended September 30, 1997 were $208,352, up 
$27,348 (15.1%) from $181,004 reported in the comparable period of 1996.  
Results for the current quarter reflect primarily that for duplication on 
diskette (57.0%) and fulfillment activity (12.0%), while those for the 
comparable period for the prior year included duplication sales (60.6%) and 
service (maintenance) sales (17.2%).  Average revenue per invoice was $651.11 
in the current year compared to $576.44 in the prior year.  Indicated revenue 
figures include maintenance billings for prior year equipment sales of 
$35,811 in the current year, vs $30,817 previously.  

COST OF SALES
Cost of sales were $150,666 or 72.3% of revenues.  This compares to $158,854 
in the comparable period in the prior year, or 87.8% of revenues.  The lower 
percentage amount in the current year reflects lower materials costs and 
different product mix in the current year, with proportionately more sales 
related to maintenance contracts.  Direct costs including labor, diskettes, 
labels and similar items, plus depreciation, as a percent of non maintenance 
sales were 48% of such sales vs 50% in the prior year. 

OPERATING EXPENSES, INTEREST AND FINANCING EXPENSE
Operating expenses were $504,194 (242.0% of sales), a increase of $165,453 
(48.8%) from the $338,741 (214.8% of sales) reported during the comparable 
quarter in the prior fiscal year.  Higher operating expenses in the current 
period relate primarily to legal costs and audit costs, including those 
related to the Company's current private placement and audit, outside 
professional expenses and expenses related to the Company's relocation.

Financing expense in the current period was $179,265 compared with $128,033 
for the comparable period in the prior year.  The increase of $48,732  
(37.7%) reflects the higher average 



                                       9
<PAGE>

borrowings for the Company's accounts receivable financing and that related 
to its bridge loan obtained in May.

NET LOSS
The Company had a loss of $625,773 (300.3% of sales) for the period as 
compared to a loss of $444,624 (245.6% of sales) for the same period last 
year.  This equates to losses of $.06 and $.05 per share respectively, for 
the same periods. The higher loss (in both dollars and as a percent of sales) 
in the current period occurred because higher product margins were more than 
offset by higher administrative and financing costs.  The higher loss per 
common share includes the effect of  an increase in the weighted average 
number of shares of approximately 1.8 million, related to conversion of 
certain debts to common stock in October of 1996.


LIQUIDITY AND CAPITAL

During the period ended September 30, 1997, the Company continued to 
experience a significant level of operating losses, relative to its 
resources.  Net cash used in operating activities in the current period was 
$479,937 compared with net cash used of $554,351 in the prior year.  The 
lower cash usage in operations in the current period occurred because the 
higher loss level in the current year was offset to a greater extent by 
increased current liabilities, than occurred in the prior period.  Operations 
were funded through a combination of increased notes payable and additional 
equity obtained through the Company's current private placement.  The 
Company's cash balances at September 30, 1997 and September 30, 1996 were 
$38,999 and $6,638, and its net worth at September 30, 1997 was a deficit of 
approximately $5.4 million.

The Company's ability to operate effectively during the past several years 
has been constrained by the extremely low level of its financial resources, 
by expenditures involving its planned transition to CD-ROM manufacture and by 
an increasingly competitive market for diskette duplication.  Management's 
efforts to address this situation have focused on raising additional outside 
funding, continuing to address past financial obligations consistent with 
resource availability and implementing plans to begin compact disk ("CD") 
manufacturing.

During the period ended September 30, 1997, the Company realized cash 
proceeds of $175,500 from sale of its Series A preferred stock pursuant to 
its current private placement offering.  In addition, it obtained a 
convertible "bridge loan" of approximately $400,000.  These receipts bring 
the total of funds raised from both the Series A preferred stock and the 
bridge loan, to approximately $1.018 million, cumulatively.  This increased 
liquidity permitting the Company to repay a portion of its receivables 
financing while continuing repayment of past due trade creditors and 
restructuring of its balance sheet.  ADC completed payment programs with 
several of such vendors in May and June, and its monthly payments to such 
trade creditors have been reduced to below $50,000 per month.  

ADC has also obtained a written commitment for its long term equipment 
financing, and has negotiated further reductions in equipment prices and 
extended payment terms for purchase orders necessary for CD manufacturing 
equipment.  The Company is hopeful that such activities will be concluded by 
December 31, 1997, including the delivery of such equipment and commencement 
of CD manufacturing.  ADC continues to believe that meaningful business 



                                       10
<PAGE>

opportunities are available in the CD market in view of the increasing 
availability of CD/DVD readers and products, and future growth projected for 
this market. 

In the meantime, the Company's operating cash environment continues to 
reflect a shortfall of revenues from existing products to cover its cash 
needs, including costs related to repositioning the business to convert to 
CD-ROM production.  It will continue to minimize cash outflows and rely on 
existing credit facilities until it achieves positive operating cash flows.  
The Company is hopeful that this will begin in its fiscal fourth quarter.



                                       11
<PAGE>

                        APPLIED DATA COMMUNICATIONS, INC.
                                           
                                  FORM 10-QSB
                                           
PART II  OTHER INFORMATION

ITEM 1  LEGAL PROCEEDINGS.

The Company is party to some litigation with various of its creditors 
regarding payment of past due financial obligations.  The Company has 
initiated negotiations with such creditors relative to arranging extended 
payment schedules for such obligations on terms comparable with those 
effected over the past year.

ITEM 2  CHANGES IN SECURITIES.

None


ITEM 3  DEFAULTS UPON SENIOR SECURITIES.

None


ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None


ITEM 5  OTHER INFORMATION.

None


ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K.

None



                                       12
<PAGE>



                                      SIGNATURES

                                           



In accordance with the requirements of the Exchange Act the registrant has 
duly caused this report to be signed on its behalf by the undersigned, 
thereunto duly authorized.

APPLIED DATA COMMUNICATIONS, INC.
                (Registrant)


August 15, 1997                    /s/  Barry K. Sugden, Jr
---------------                         -------------------
    Date:                               Chief Financial Officer




                                       13