SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended September 30, 1994 OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _________ to _________
Commission File Number 0-14204
DATA NATIONAL CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
Colorado 84-0958983
________________________________ __________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11365 West, I-70 Frontage Road-North
Wheat Ridge, Colorado 80033
________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 431-1933
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 No X .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[ ]
Issuer's revenues for the fiscal year ended September 30, 1994 were
$2,369,435.
As of September 30, 1994, the aggregate market value of the common stock of
the Registrant held by non-affiliates was undeterminable at that time due
to a lack of any consistent trading market for the Registrant's shares.
As of September 30, 1994, there were 327,478,340 shares of the Registrant's
$.0001 par value common stock outstanding.
INDEX
PAGE
PART 1
ITEM 1. DISCRIPTION OF BUSINESS
a) Business Developement 2
b) Business of Issuer 3-6
ITEM 2. DISCRIPTION OF PROPERTY 6
ITEM 3. LEGAL PROCEEDINGS 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6
PART 2
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
a) Market Information 7
b) Holders 7
c) Dividends 7
ITEM 6. MANAGMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 7-9
ITEM 7. FINANCIAL STATEMENTS
a) Letter to the Stockholders and Board of Directors 10
b) Consolidated Balance Sheets 11
c) Consolidated Income Statements 12
d) Statement of Changes in Stockholders Equity 13
e) Statement of Cash Flows 14
f) Notes to Consolidated Financial Statements 15-20
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACOUNTING AND FINANCIAL DISCLOSURE 21
PART 3
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS 21-23
ITEM 10. EXECUTIVE COMPENSATION 23-25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGMENT 25
ITEM 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS 25-26
SIGNATURES 27
PART 1
Item 1. Description of Business
________________________________
(a) Business Development.
Data National Corporation (the Company) was formed under the
laws of the State of Colorado in November 1982. On March 23, 1987,
the Company acquired 97.8% of the outstanding shares of Data
National Inc. (DNI), which resulted in a complete change in control
of the Company. In June 1986, DNI acquired, through an exchange of
its common stock, 100% of the outstanding common stock of Service
Business Systems, Inc. (SBS) and National COM-LINK Systems, Inc.
(COM-LINK). The Company acts as a holding company for these
subsidiaries and coordinates their activities.
The Company had substantial operating losses for the period
from inception through the year ended September 30, 1990. At one
time during 1990, the Company and its subsidiaries were indebted to
the Internal Revenue Service and the Colorado Department of Revenue
for over $190,000 in past due withholding taxes and its continued
operation was in substantial doubt.
In 1990, there were changes in the management of the Company.
In October 1990, Richard Simms became the Chief Executive Officer of
the Company and the previous president and CEO was dismissed. The
Dillon family, major stockholders and a member of which is a Board
member, loaned the Company funds to enable the Company to pay its
obligations to the Internal Revenue Service.
The Company filed Form 10-K for the period ended September 30,
1990, but did not include audited financial statements due to the
cost of an audit and the working capital deficit accumulated by the
Company. As of September 30, 1990, the current liabilities of the
Company exceeded the current assets by $342,470.
The Company lost a major customer in March 1991 that accounted
for 22% of its revenue, and experienced other extensive operating
difficulties, resulting in much of the staff being dismissed. In
1991, the Company discontinued filing with the Securities and
Exchange Commission (SEC) because of its lack of staff and pressing
operational concerns resulting from its precarious financial
situation.
The Company has been profitable each year since September 30,
1990. The profits have been fairly small but consistent, and the
Board of Directors decided in 1994 to resume filings with the SEC.
SBS is the only active subsidiary, although during 1994,
COM-LINK received royalties from licensing a trademarked name.
(b) Business of Issuer.
Principal Products and Services
The Company derives revenue from products and services provided
by its subsidiary, SBS. SBS markets and sells the Autotrac system
to the service stations of major oil companies, auto repair
facilities that specialize in tire sales, quick-lube facilities,
tune-up facilities, and independent repair facilities that are
members of national groups (subscribers). The Autotrac system is
designed to increase repeat business to subscribers through the
mailing of postcards to customers thanking them for the business,
reminding them that it is time for regular servicing (such as a tune-
up or oil change), or reminding customers that certain parts need to
be replaced for safety reasons (e.g., brakes, tires, or shocks). To
utilize the services provided by SBS, participating subscribers send
SBS copies of their repair orders that include information about a
specific customer, their vehicle, and the services performed by the
repair facility. SBS extracts certain information and enters it
into their computerized database. Each subscriber then selects when
and what types of cards are to be sent, and reminder cards are
produced and mailed directly to the subscriber's customers. The
subscriber also selects the messages to be printed on the cards, the
promotions and/or specials to be offered, etc. The subscriber can
update or change the messages, as desired.
As an integral part of the reminder system, SBS provides
subscribers with monthly management reports detailing information
concerning their customers served and services performed, a customer
zip code analysis, new versus repeat customers, and other
information based on the data collected by SBS from the repair
orders submitted by the subscriber.
SBS also markets and sells products that utilize information
regarding the subscriber and their customer databse. The products
are as follows:
1. Greeting Cards. Using the facility's database, SBS mails
holiday greeting cards to customers of the subscriber.
2. New Residence. SBS mails promotional material to
individuals who have moved into the subscriber's market area.
3. Cashier Handout. SBS produces point-of-sale coupons that
can be used to increase the repair business of the subscriber.
4. Customer Surveys. SBS sends survey cards to the
subscriber's customers and reports the results of the survey to the
subscriber.
The key to the services provided by SBS is being able to
utilize the existing customer database of the subscriber.
SBS also derives revenue from providing creative services to
the facilities.
Employees
SBS employs all of the employees of the Company. As of
September 30, 1994, SBS had 21 full-time employees working in the
offices of the Company. In addition, SBS has approximately
20 employees for coding and inputting the information received from
customers into the SBS computer system, some of whom are part-time.
These employees are home based.
Status of Products
The Autotrac system requires customer information to be input
into the database maintained by SBS. The information is either
input by the SBS home-based computer operators or downloaded
directly from the subscriber's computer. The information is
processed by the computer, and the subscriber's database for their
customers is updated. Notices are printed and mailed to the
customers in the database. The Autotrac system uses a Novell
network that includes PC equipment. The system also includes three
production printers. In addition, SBS has numerous PC work stations
for use by the account executives and data entry personnel.
Management of SBS believes this equipment will permit SBS to handle
all of its present and foreseeable data processing needs through
September 30, 1995.
Sources and Availability of Raw Materials
The Company has experienced no significant difficulty with the
delivery and availability of supplies that it sells to its
customers, and no difficulty is forecast for the immediate future.
Patents, Licenses, Franchises, Concessions, Etc.
The Company has no patent protection for its existing products
that the Company considers to be proprietary items. Except in
unusual circumstances, which do not apply to the Company, computer
software is generally not patentable, but is protected by copyright
and trade secret laws, as well as contractual and nondisclosure
provisions of the Company's licensing agreements.
Seasonality
SBS produces holiday greeting cards in November and December.
For the year ended September 30, 1994, SBS received revenues of
approximately $229,000 as a result of the holiday greeting card
program. There is no other seasonal factor to the Company's
business.
Dependence Upon Small Number of Customers
The business of SBS is very dependent upon a few major
customers; the loss of any one or more of these customers could have
a materially adverse effect on the business and operations of the
Company. During the fiscal year ended September 30, 1994, major
customers represented approximately the following proportion of the
SBS gross revenues:
Company A - 41%
Company B - 12.2%
Competition
SBS has approximately 20 competitors that compete directly with
them in the automotive aftermarket business. Most of the
competitors are small companies like SBS with none of them having a
market share of more than 20%. However, the largest competitor is
Moore/BCS, a division of Moore Business Forms in Toronto, Canada, a
billion dollar conglomerate. Mailmark, Inc., based in Canoga Park,
California, is a direct marketing/data processing company, which
provides a specialized service reminder/customer contact program for
the automotive industry. Other companies like Reynolds and
Reynolds, Brandt Contact Services, Computer Care, and InteliMail are
known competitors.
A competitive analysis suggests that there are many potential
entrants in this industry primarily because technology today allows
just about anyone with a computer to enter the business. Suppliers
to SBS, such as printing companies and direct mail companies could
become competitors if they choose to expand their own channels of
distribution. Buyers could also decide that they have all of the
information necessary to do their own marketing and evaluations.
However, SBS believes that its marketing strategy permits it to
effectively compete with these companies. With economies of scale
and a national account strategy, SBS believes that the service
provided is more cost effective.
Research and Development Expenditures
Although no costs were classified as research and development
during each of the past two fiscal years, the Company expends
considerable effort for software improvements on an annual basis.
Such effort is a necessary element for maintaining the
competitiveness of its software modules, and such costs are recorded
as normal operating expenses.
Governmental Regulation and Compliance
There are no governmental regulations pertinent to operations
that would differ from those applicable to any small manufacturer.
There is no need for government approval of the Company's products.
Any costs or effects of compliance with environmental laws are de
minimis.
Item 2. Description of Property
- ---------------------------------
The Company occupies office space under two 3-year leases that
expire in April 1997 and require an aggregate monthly payment of
$2,800.
Item 3. Legal Proceedings
__________________________
In October 1993, a corporation filed suit against the Company
and others in the United States District Court for Northern District
of Texas, alleging copyright infringement, unfair competition, and
misappropriation of trade secrets. Basically, it has been alleged
that certain computer programs formerly marketed by the Company
infringed on the plaintiff's copyright, through the use of software
developed by another defendant who had formerly worked for the
plaintiff. The plaintiff requested actual and punitive damages in
excess of $5,000,000.
Item 4. Submission of Matters to a Vote of Security Holders
____________________________________________________________
No matter was submitted during the fourth quarter of the fiscal
year ended September 30, 1994 to a vote of security holders, through
the solicitation of proxies or otherwise.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
_____________________________________________________________________
(a) Market Information.
The Company's common stock has not been traded on the over-the-
counter market. Because of the lack of any viable trading market
for the Company's securities, no accurate market information is
currently available.
(b) Holders.
The number of holders of record of the Company's $.0001 par
value common stock at September 30, 1994, was approximately 1,337.
(c) Dividends.
Holders of common stock are entitled to receive such dividends
as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock
and no dividends are anticipated to be paid in the foreseeable
future.
Item 6. Management's Discussion and Analysis or Plan of Operation
___________________________________________________________________
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
June 30, 1994 Compared to June 30, 1993
From June 30, 1993 to June 30, 1994, Registrant's working
capital increased by $43,487 (from $88,844 to $132,331). Although
cash decreased by $116,010, trade receivables increased by $131,434,
a result of an unusually large balance due from Sunoco in 1994,
which was collected shortly after year-end. Repayment of the note
due to a major shareholder and board member and his father (the
"Dillon note") aggregated $49,218, and repayment of capital leases
amounted to $16,552. Additionally, $33,236 was used to acquire
additional property and equipment, almost all of which consisted of
computers. Management intends to continue to upgrade its systems
and incur similar capital expenditures in so doing, but was not
obligated by contract for any capital expenditures at September 30,
1994.
The Company agreed to settle an old liability with the State of
Colorado Department of Revenue in April 1995, which required
approximately $37,600, and is included in accrued expenses at
September 30, 1994.
The Company is dependent upon the financing provided by the
Dillon note for its continued existence, and management is presently
negotiating for a multi-year extension of the note prior to its due
date of October 1, 1996.
As disclosed in the financial statements, the Company was named
as a defendant, along with other parties, in a lawsuit filed in
October 1993 in which the plaintiff requested actual and punitive
damages in excess of $5,000,000. On November 6, 1995, the court
granted the Company's motion for summary judgement on the statute of
limitations and dismissed the case with prejudice. However, the
plaintiff has moved to reconsider, and the time for appeal has not
expired. Accordingly, there is still the possibility of an adverse
verdict. The Company believes that favorable operating results will
continue and provide adequate liquidity for the near-term future.
Results of Operations
1994 Compared to 1993
For the year ended September 30, 1994, the nature of the
Company's operations was unchanged and focused on providing
marketing services to service stations and similar entities,
nationally. One major customer accounted for 41% of net sales in
1994, as compared to 37.8% in 1993, and loss of this customer would
have a materially adverse effect, including possible cessation of
operations. Another customer accounted for 12.2% of net sales in
1994, as compared to 10.1% in 1993.
Sales were practically unchanged in 1994 as compared to 1993,
reflecting the general stability of the customer base, including the
major customers discussed previously. Cost of sales increased from
46.2% of sales to 50.2% because of an increase in production
salaries and wages of approximately $72,000, due to additional
"coding and keying" as well as rate increases and more detailed cost
allocations to this category based on time allocations and more
detailed record keeping than had been done in the past. Postage
costs, which is also a significant component of cost of sales,
increased by roughly $16,000.
Selling and marketing expense increased by $35,105, or 9.1%, in
1994. Salaries of account executives increased by $31,300,
reflecting additional staff, which accounted for substantially all
of this increase. General and administrative expense decreased by
$167,069, or 23%, in 1994. Included in these costs in 1993 was a
settlement for litigation of $48,000. The Company also accrued
$36,000 in 1993 as an estimate to reimburse its new president for
certain moving expenses. Approximately $10,000 in 1993
administrative related expenses to COM-LINK were eliminated in 1994
when COM-LINK ceased operations. Additionally, in general,
management attempted to reduce administrative costs to increase
working capital and began allocating certain costs to cost of sales,
which had not been done previously.
Interest expense was stable in 1994 and is primarily
(approximately 96% in 1994) related to the Dillon note. This is
expected to continue to be a significant cost in the foreseeable
future, representing about 4% of net sales in both 1994 and 1993.
Item 7. Financial Statements
_____________________________
To the Stockholders and Board of Directors
Data National Corporation
I have audited the consolidated balance sheets of Data
National Corporation and subsidiaries as of September 30,
1994 and September 30, 1993, and the related consolidated
statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial
statements are the responsibility of the Company's
management. My responsibility is to express an opinion on
these financial statements based on my audits.
I conducted my audits in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Data National Corporation and
subsidiaries as of September 30, 1994 and 1993, and the
consolidated results of their operations and their
consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Littleton, Colorado
January 20, 1995
(December 28, 1995 as to Note 6)
DATA NATIONAL CORPORATION
Consolidated Balance Sheets
September 30, 1994 and 1993
1994 1993
_________ ________
Assets
Current Assets:
Cash and equivalents.................................. $ 84,245 $200,255
Receivables:
Trade less allowance for bad debts of $5,077..........45,221 110,743
in 1994 and 1993, respectively
Other................................................. 15,134 18,178
Inventory, at cost...................................... 41,568 45,787
Prepaid expenses......................................... 7,843 2,585
_______ _______
Total current assets............................... 394,011 377,548
Property and equipment, at cost.......................... 368,106 314,111
Less: Accumulated depreciation......................... (286,856) (253,924)
_________ _________
81,250 60,187
_________ _________
Other assets............................................... 2,888 150
_________ _________
$478,149 $437,885
_________ _________
Liabilities and Stockholders' Deficit
Current Liabilities:
Deferred revenue...................................... $127,977 $121,376
Accounts payable....................................... 64,475 56,837
Accrued expenses........................................ 60,967 99,966
Current portion - capital leases......................... 8,261 10,525
_______ _______
Total current liabilities.......................... 261,680 288,704
_______ _______
Note payable-related party............................... 868,208 17,426
Capital leases, net of current portion.................... 10,526 4,055
Stockholders' Deficit
Common stock $.0001 par value, authorized 600,000,000
shares; 327,478,340 shares issued and outstanding....... 32,747 32,747
Accumulated deficit.................................... (695,012) (805,047)
_________ _________
(662,265) (772,300)
_________ _________
$478,149 $437,885
________ ________
________ ________
See accompanying notes to financial statements.
DATA NATIONAL CORPORATION
Consolidated Income Statements
Years Ended September 30, 1994 and 1993
1994 1993
________ ________
Net sales.......................................... $2,369,435 $2,374,610
Cost of sales....................................... 1,188,457 1,097,223
__________ __________
Gross profit.................................... 1,180,978 1,277,387
Selling and administrative expense.................... 980,586 1,112,550
___________ __________
Operating income.................................. 200,392 164,837
Other income (expense):
Interest and other income............................. 4,927 (2,829)
Interest expense, primarily related party........... (95,284) (94,213)
_________ _________
(90,357) (97,040)
_________ _________
Net income....................................... $110,035 $67,795
_________ _________
_________ _________
Net income per share................................. - -
Weighted average shares outstanding.............. 327,478,340 327,478,340
___________ ___________
___________ ___________
See accompanying notes to financial statements.
DATA NATIONAL CORPORATION
Statement of Changes in Stockholders' Equity
Years Ended September 30, 1994 and 1993
Accumulated
Shares Amount Deficit
________ ________ ___________
Balance, October 1, 1992....... 327,478,340 $32,747 $(872,842)
Net income..................... - - 67,795
Balance, September 30, 1993.... 327,478,340 32,747 (805,047)
Net income..................... - - 110,035
Balance, September 30, 1994.... 327,478,340 $32,747 $(695,012)
See accompanying notes to financial statements.
DATA NATIONAL CORPORATION
Statements of Cash Flows
Years Ended September 30, 1994 and 1993
1994 1993
________ ________
Cash flow from (used in) operating activities
Net income............................................. $110,035 67,795
Adjustments to reconcile net income to cash flow
from operating activities:
Depreciation............................................. 32,932 28,610
Changes in assets and liabilities:
(Increase) decrease in receivables................. (131,434) 38,015
(Increase) decrease in inventory...................... 4,219 (15,787)
(Increase) decrease in prepaid expenses............. (5,258) (2,585)
(Increase) decrease in other assets.................. (2,738) 4,850
Increase (decrease) in accounts payable.............. 7,638 16,456
Increase (decrease) in accrued expenses............ (38,999) 36,268
Increase in deferred revenue......................... 6,601 890
_________ ________
Total adjustments.................................. (127,039) 106,717
_________ ________
Cash flow from (used in) operating activities...... (17,004) 174,512
Cash flow (used in) investing activities:
Purchases of property and equipment...................... (33,236) (854)
Cash flow from (used in) financing activities:
Borrowings - related party............................... - 707
Repayment of related party note.......................... (49,218) -
Repayment of capital leases.............................. (16,552) (10,085)
________ ________
Cash flow (used in) financing activities................. (65,770) (9,378)
Increase (decrease) in cash and equivalents............ (116,010) 164,280
Cash and equivalents, beginning of year.................. 200,255 35,975
_______ ________
Cash and equivalents, end of year........................ $84,245 $200,255
_______ ________
_______ ________
Supplemental information:
Income taxes paid...................................... - -
Interest paid.......................................... $93,329 $92,802
_______ ________
_______ ________
See accompanying notes to financial statements.
DATA NATIONAL CORPORATION
Notes to Consolidated Financial Statements
September 30, 1994 and 1993
(1) Organization, Operations, and Significant Accounting Policies
Organization and Operations
___________________________
Data National Corporation (DNC) was incorporated under the
laws of the State of Colorado on November 5, 1982.
On March 23, 1987, and in a subsequent exchange, DNC
acquired 97.8% of the outstanding common stock of Data
National, Inc. (DNI) in exchange for 168,688,240 shares of
DNC's common stock, plus warrants to certain shareholders of
DNI. The combination of the two companies was accounted for
as a recapitalization, with DNI considered as the acquiring
company (although DNC itself is the surviving corporation).
On June 2, 1986, DNI acquired 100% of the outstanding common
stock of Service Business Systems (SBS) and National Com-
Link Systems, Inc. (Com-Link) by exchanging 1,050,000 shares
of its common stock. The combination of these companies was
accounted for as a pooling of interests.
SBS provides marketing and database services for repair
facilities, and is the only operating subsidiary at present.
Principles of Consolidation
___________________________
The consolidated financial statements include the accounts
of DNC, DNI, SBS, and Com-Link (collectively, the Company).
All material intercompany accounts and transactions are
eliminated in consolidation.
Deferred Revenue
________________
Prepayments for products are recorded as deferred revenue
until the product is delivered.
Revenue and Credit Risk
_______________________
Revenue is recognized upon production and mailing of
products. Sales are made by extending credit to customers
on a short-term basis, using informal credit evaluations,
and are on an uncollateralized basis. See Note 5 for
disclosure of major customers for further information on
credit risk.
Inventory
_________
Inventory consists of unprinted card stock, and is presented
at cost on a first-in-first-out basis.
Property and Equipment
______________________
Property and equipment are stated at cost, and are
depreciated over useful lines of from 5 to 7 years. A
summary of property and equipment at September 30, 1994 and
1993 follows:
1994 1993
_________ _________
Furniture and fixtures $ 11,984 $ 11,984
Office equipment 58,587 38,623
Production equipment 287,477 253,446
Vehicles 10,058 10,058
________ ________
$368,106 $314,111
________ ________
________ ________
Cash Equivalents
________________
The Company considers investments with an original maturity
of three months or less to be cash equivalents.
Net Earnings or (Loss) Per Share of Common Stock
________________________________________________
Net earnings (loss) per share has been computed based on
the weighted average number of common shares outstanding
during the year.
Income taxes
____________
The Company adopted Statement of Financial Accounting
Standards 109 in the year ended September 30, 1994.
However, because of the large net operating loss available,
the effect of this accounting change is nil because of the
uncertainty regarding its realization. Accordingly, an
allowance that offsets the estimated tax benefit of
$286,000 has been provided.
The amount of the net operating loss carry forward and its
expiration is as follows:
Expiration Amount
__________ _______
1999 130,000
2000 208,000
2001 87,000
2002 11,000
2003 501,000
2004 432,000
2005 399,000
__________
$1,768,000
__________
__________
This amount may be further limited by separate return year
limitations for the years 1984 to 1987, which aggregate
$437,000 and would reduce the carry forwards with
expirations from 1999 to 2002.
(2) Related Party Transactions
__________________________
The Company refinanced certain existing indebtedness to two
individuals (father and son), considered collectively in
the note, in October 1991. One of the two individuals is a
member of the Board of Directors and owns 36,763,324 shares
of the Company's common stock. The principal amount of the
note is $737,000, with interest at 10%, due on or before
October 1, 1996. Additionally, the Company owed $182,441
in accrued interest from the prior indebtedness. The note
and this accrued interest are secured by inventory; trade
receivables; the right to the name, "Data National
Corporation," and related trademarks, licensing agreements,
patents, and similar rights; bank accounts; and the stock
of DNI and all of its subsidiary corporations. The
extension or refinancing of this note is significant to the
Company's continued operation.
In conjunction with the refinancing, the two individuals
also received warrants to purchase 64,000,000 shares of the
common stock of Data National Corporation. The warrants
are exercisable on or before September 30, 1996, at a
purchase price of $.0005 per share.
The two individuals have entered into an agreement with the
(then) president (now chief financial officer) whereby, in
consideration for him becoming president, they sold to him
certain shares of stock, agreed to pay him 10% of any
principal paid to them (i.e., the $737,000 referred to
above), agreed to pay him 50% of interest payments
collected by them, and assigned the warrants to purchase
64,000,000 shares of common stock to him. There have not
been any (original) principal repayments to date. Interest
expense amounted to $91,358, and $91,702, in 1994 and 1993,
respectively.
A member of the Board of Directors received $3,000 per
month in 1994 and 1993 for consulting services. This
director at one time was indebted to the Company for
$28,870, but this amount was not collected and was written
off prior to 1993. A company controlled by this director
owed the Company $2,924 at September 30, 1994, as
reimbursement for health insurance premiums.
The son of the chief financial officer leases equipment to
the Company under three capital leases, which are
summarized in Note 3.
(3) Capital Leases
______________
The Company leases various equipment under capital leases.
Following is a summary of minimum lease payments required
under capital leases as of September 30, 1994:
1995 $12,720
1996 7,732
1997 695
_______
21,147
Less: (2,360)
interest _______
$18,787
_______
_______
Assets held under capital leases are summarized as follows:
1994 1993
________ ________
Assets at cost...................................... $65,394 $44,636
Less: accumulated depreciation................ (27,015) (17,062)
________ ________
$38,379 $27,574
________ ________
________ ________
A summary of capital leases follows:
1994 1993
________ ________
Monthly payment of $444, interest at 18.5%,
due in March 1995................................. $ 2,523 $ 6,925
Monthly payment of $251, interest at 14.1%,
due in April 1995................................... 1,533 4,311
Monthly payment of $174 (final payment of $591) to
related party, interest at 14%, due in November 1996....4,175 -
Monthly payment of $233 (final payment of $1,186) to
related party, interest at 14%, due in August 1996..... 5,239 -
Monthly payment of $285 (final payment of $240) to
related party, interest at 14%, due in April 1996...... 5,319 -
Assets held under capital leases (continued):
1994 1993
_________ ________
Monthly payment of $328, interest at 20.5%,
retired in March 1994...................... - 2,077
Monthly payment of $325, interest at 16.7%,
retired in November 1993..................... - 333
Monthly payment of $333, interest at 19.4%,
retired in December 1993..................... - 935
18,787 14,581
Less: current portion ( 8,261) (8,230)
________ _______
$10,526 $ 6,351
________ _______
________ _______
Amortization of capital leases is included in depreciation expense.
(4) Commitments
___________
Office Lease
____________
The Company occupies office space under two 3-year leases
that expire in April 1997 and require monthly payments of
$2,800. Following is a summary of future rental commitments
under this lease:
1995 $33,600
1996 $33,600
1997 $19,600
Rent and related charges amounted to $34,900 and $34,129 in
1994 and 1993, respectively.
Incentive Plans
_______________
In July 1994, the Company adopted an Employee Incentive
Plan, which provides for a contribution to the Plan of 5% of
quarterly sales in excess of $480,000. For the quarter
ended September 30, 1994 (the first eligible quarter), this
contribution amounted to $11,422 and has been accrued in the
accompanying balance sheet.
Also in July 1994, the Company adopted an Executive
Compensation Incentive Plan, which provides for a
contribution to the Plan of 20% of quarterly net income in
excess of $75,000. Through September 30, 1994, there were
no contributions due.
Profit-Sharing Plan
___________________
In August 1992, the Company adopted a 401-K Profit Sharing
Plan, which covers all employees with one quarter of a
year's service who are at least 21 years old. A participant
may defer a maximum of 15% of compensation to a statutory
limit, and the Company matches the first 5% of the deferral.
In 1994, such contributions amounted to $1,300 and
approximately $1,000 in 1993.
(5) Major Customers
_______________
The following customers each accounted for more than 10% of
sales in 1994 and 1993:
% of Sales
____________
Customer 1994 1993
________ ____ ____
A 41 37.8
B 12.2 10.1
(6) Litigation
__________
In October 1993, a corporation filed suit against the
Company and others in the United States District Court for
Northern District of Texas, alleging copyright infringement,
unfair competition, and misappropriation of trade secrets.
Basically, it has been alleged that certain computer
programs formerly marketed by the Company infringed on the
plaintiff's copyright, through the use of software developed
by another defendant who had formerly worked for the
plaintiff. The plaintiff requested actual and punitive
damages in excess of $5,000,000.
On November 6, 1995, the Court granted the Company's motion
for summary judgement on the statute of limitations and
dismissed the case with prejudice. However, the plaintiff
has moved to reconsider, and the time for appeal has not
expired. Accordingly, there is still the possibility of an
adverse verdict.
In 1994, the Company and its former president (who was at
that time president) verbally agreed that the Company would
pay him up to $36,000 in shares of the Company's common
stock as reimbursement for certain moving expenses upon
proper documentation of the expenses. The stock was never
issued, and in February 1995, the former president informed
the Company that he did not want the stock as there was no
market for it. In June 1995, the Company offered to pay
this amount in cash in return for certain releases and
covenants and documentation of the claimed expenses. The
former president refused to sign the releases and covenants,
and in December 1995 sued the Company for $36,000 and
$18,000 in damages. Management accrued $36,000 at September
30, 1993 to recognize the estimated liability, and believes
that settlement of the claim will not be material to the
accompanying financial statements.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
_________________________________________________________________
In June 1994, the Company reported a change in its
independent accountant. The firm of Miller and McCollom had
performed the last audit of the Company's financial statements as
of September 30, 1989, and for the year then ended. There were
no reportable disagreements with that firm, and its report for
1989 was qualified regarding the Company's ability to continue as
a going concern.
The Company engaged the firm of William G. Lajoie, P.C., to
audit its financial statements for the years ending September 30,
1993 and 1994.
These actions were approved by the Company's Board of Directors.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act.
__________________________________________________________________
The Directors and Officers of the Company at September 30, 1994,
are as follows:
Name Age Position
___________________ ____ ____________________________________________
William R. Jones 60 Chairman of the Board
Richard Simms 44 Chief Financial Officer, Director, Treasurer
Ray E. Dillon III 41 Director
Thomas R. Young III 47 Director
William Eyerdom 54 Chief Executive Officer, Director
There is no family relationship between any director,
executive officer, or person nominated or chosen by the Company
to become a director or executive officer. All directors will
hold office until the next annual meeting of shareholders. There
are no arrangements or understandings between any director of the
Company or any other person or persons pursuant to which such
director was or is to be selected as a director.
The Board of Directors held two meetings during the past
fiscal year, and all of the members currently on the Board were
present at all of the meetings. There were no meetings of any of
the committees of the Board of Directors during the past fiscal
year.
All officers of the Company hold office at the discretion of
the Board of Directors. Except as set forth herein, there is no
arrangement or understanding between any such officer or any
other person pursuant to which such officer is to be selected as
an officer of the Company. There is no person who is not a
designated officer who is expected to make any significant
contribution to the business of the Company.
Directors are paid a fee of $200 per meeting attended and
are reimbursed for any out-of-pocket expenses incurred.
The following sets forth biographical information as to the
business experience of each officer and director of the Company.
William R. Jones was Chairman of the Board, President, and
Chief Executive Officer of the Company from March 23, 1987, and
of DNI from its inception. On September 30, 1989, he
relinquished the title and duties as President of the Company and
DNI. He was President and Chairman of the Board of National COM-
LINK and Service Business Systems since inception. These two
companies became subsidiaries of DNI in June 1986. Mr. Jones is
also President and a principal shareholder of Warranty Service
Systems, Inc., which he co-founded in 1984. Warranty Service
Systems, Inc., is engaged in providing third-party administration
for warranty programs for Shell, Amoco, Goodyear, and Sunoco.
Mr. Jones devotes part of his time to the business of the Company
and its subsidiaries.
Richard Simms is the Vice President of Finance of the
Company. He was President and Chief Executive Officer of the
Company from October 1990 to July 1993. He has been a Director
of the Company since March 23, 1987, and of DNI since its
inception. Since 1986, he has practiced as a certified public
accountant and an independent financial advisor. Mr. Simms is a
CPA registered in Colorado. Mr. Simms devotes part of his time
to the business of the Company and its subsidiaries.
Ray E. Dillon III has been a Director of the Company since
March 23, 1987, and of DNI since its inception. He is Vice
President of Dillon Investments, a private trust management
company for the Dillon family, where he has been employed since
1985. Mr. Dillon only devotes such time to the activities of the
Company as is necessary
Thomas R. Young III was Secretary and a Director of the
Company since March 23, 1987, and of DNI since its inception. On
September 30, 1989, he relinquished the title of Secretary.
Mr. Young is in the casualty insurance business. Prior to that,
he was President of Omni Bank of University Hills, N.A., Denver,
Colorado. Mr. Young devotes only such time to the activities of
the Company as is necessary.
William Eyerdom was appointed President of the Company in
July 1993. Prior to working for the Company, he was employed by
Sun Oil Company as a Franchise Development Manager. Mr. Eyerdom
devotes all of his time to the activities of the Company.
Compliance With Section 16(a) of the Exchange Act
_________________________________________________
Section 16(a) of the Securities Exchange Act of 1934 does
not require any of the Company's officers, directors or persons
who own more than ten percent of the Company's equity securities
to file any reports of ownership or changes in ownership with the
Securities and Exchange Commission because the Company does not
currently have any class of securities registered under Section
12 of that Act.
Item 10. Executive Compensation
________________________________
The following table sets forth the compensation paid or
accrued to the Chief Executive Officer and each executive officer
of the Company and its subsidiaries who received compensation in
excess of $100,000 during the fiscal years ended September 30,
1994 and 1993:
Summary Compensation
____________________
Annual Compensation1 Long-Term Compensation
____________________ ______________________________
Awards Payouts
_____________ _______________
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
______________________________________________________________________________
William 1993 16,000 -0- -- 2 -- -0- $ 900
Eyerdom, CEO (3)
William 1994 85,000 -0- -- __ -- -0- $6,156
Eyerdom, CEO (3)
Richard 1994 35,000 -0- -- __ -- -0- --
Simms, CEO
________________________________
(1) There were no executive officers whose compensation exceeded
$100,000 in either 1993 or 1994.
(2) Mr. Eyerdom was offered certain restricted stock as
reimbursement for moving expenses incurred in 1993. Mr.
Eyerdom refused the stock, and was not awarded the stock in
1993 or 1994.
(3) Represents the value of a leased automobile and
reimbursement of gas and certain maintenance charges.
The following table shows certain information with respect
to stock options granted to the Company's executive officers
during the fiscal year ended 1994:
Option/SAR Grants in Last Fiscal Year
Individual Grants
_____________________________________________________________
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price($/Sh) Date
______________________________________________________________________________
William Eyerdom -0- N/A N/A N/A
Richard Simms -0- N/A N/A N/A
The following table sets forth certain information with respect
to option exercises during the fiscal year ended September 30,
1994 by the executive officers of the Company and the value of
each such officer's unexercised options at September 30, 1995.
Aggregated Option/SAR Exercises in
Last Fiscal Year and Fiscal Year - End Option/SAR Values
__________________________________________________________________
Value of Unexercised
Shares Number of Securities Underlying in-the-Money
Acquired Unexercised Options/SARs Options/SARs
on Value at Fiscal Year-End(#) at Fiscal Year-End($)
Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
______________________________________________________________________________
William None None -0- 0 $ -0- 0
Eyerdom
Richard None None -0- 0 $ -0- 0
Simms
Estimated Future Payouts under Non-Stock
Price-Based Plans
_________________________________________
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation or Threshold Target Maximum
Name Rights(#) Payout ($ or #) ($ or #) ($ or #)
-0- -0- N/A N/A N/A
-0- -0- N/A N/A N/A
Directors' Fees
The Company authorized the payment of fees in the amount of
$200 to any Directors for attendance at Director's meetings.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
__________________________________________________________________
The following table sets forth information as of
December 31, 1994, with respect to the beneficial ownership of
the Company's $0.0001 par value common stock by (a) each person
known by the Company to be beneficial owner of 5% or more of the
Company's outstanding Common stock, (b) the directors of the
Company, and (c) the directors and officers of the company as a
group:
Name and Address Nature of Beneficial Percent
of Beneficial Owner Ownership of Class
________________________ ____________________ ________
William R. Jones 66,671,240 20.36
4891 Independence Street,
Suite 270
Wheat Ridge, CO 80033
Thomas R. Young 5,900,400 1.8
2856 South Saint Paul
Denver, CO 80210
Richard Simms 115,723,701(1) 29.56
20 Dutch Creek Drive
Littleton, CO 80123
Ray E. Dillon III 71,520,283(2) 21.84
1 Compound Drive
Hutchinson, KS 67502
William Eyerdom (3) (3)
2557 South Xenon Way
Lakewood, CO 80228
All directors and executive 259,815,624 66.37
officers as a group
________________________
(1) Includes currently exercisable warrants to purchase
64,000,000 shares, see Item 11 - Certain Relationships and
Related Transactions. Includes shares owned by the Simms
Family Partnership, controlled by Mr. Simms.
(2) Includes 30,506,959 shares owned by other members of the
Dillon family.
(3) Mr. Eyerdom was awarded shares for certain moving expenses
and refused the issuance of such shares.
(4) There are no additional officers or directors who own
shares of the Company's common stock.
Item 12. Certain Relationships and Related Transactions
________________________________________________________
No director and executive officer of the Company, nominee
for election as a director, security holder who is known to the
Company to own of record or beneficially more than 5% of any
class of the Company's voting securities, or any member of the
immediate family of any such persons, has had any transaction or
series of similar transactions, during the Company's last two
fiscal years, or had any currently proposed transaction, or
series of similar transactions, to which the Company was or is to
be a party, in which the amount involved exceeds $60,000 or in
which any of such persons had or will have any direct or indirect
material interest, except as follows:
The Company refinanced certain existing indebtedness to two
individuals (father and son), considered collectively in the note
(the "Dillon note"), in October 1991. One of the two individuals
is a member of the Board of Directors and owns and controls
71,520,283 shares of the Company's common stock. The principal
amount of the note is $737,000, with interest at 10%, due on or
before October 1, 1996. Additionally, the Company owed $182,441
in accrued interest from the prior indebtedness. The note and
this accrued interest are secured by inventory; trade
receivables; the right to the name, "Data National Corporation,"
and related trademarks, licensing agreements, patents, and
similar rights; bank accounts; and the stock of DNI and all of
its subsidiary corporations. The extension or refinancing of
this note is significant to the Company's continued operation.
In conjunction with the refinancing, the two individuals
also received warrants to purchase 64,000,000 shares of the
common stock of Data National Corporation. The warrants are
exercisable on or before September 30, 1996, at a purchase price
of $.0005 per share.
The two individuals have entered into an agreement with the
(then) president (now chief financial officer) whereby, in
consideration for him becoming president, they sold to him
certain shares of stock, agreed to pay him 10% of any principal
paid to them (i.e., the $737,000 referred to above), agreed to
pay him 50% of interest payments collected by them, and assigned
the warrants to purchase 64,000,000 shares of common stock to
him. There have not been any (original) principal repayments to
date. Interest expense amounted to $91,358, and $91,702, in 1994
and 1993, respectively.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
DATA NATIONAL CORPORATION
Registrant
Date: January 12,1996 By:/s/ Richard Simms
Richard Simms, Chief Financial
Officer, Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date: January 12, 1996 By:/s/ Richard Simms
Richard Simms, Chief Financial
Officer, Director and Treasurer
Ray E. Dillon III, Chairman of the
Board and Director
Date: January 12, 1996 By:/s/ Donald Warriner
Donald Warriner, Chief Executive
Officer and Director