SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE EXCHANGE ACT
For the transition period from _______ to _______
Commission file number 0-14204
DATA NATIONAL CORPORATION
_______________________________________________________________
(Exact name of small business issuer as specified in its charter)
Colorado 84-0958983
___________________________ _______________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
11415 West I-70 Frontage Road North, Wheat Ridge, CO 80033
__________________________________________________________
(Address of principal executive offices)
(303) 431-1933
_________________________
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 ______
The number of shares outstanding of the issuers Common Stock, .0001 par value
as of June 30, 1996 was 535,478,340 shares.
Transitional Small Business disclosure format. Yes ______ No X
INDEX
Page
PART I
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Income Statements (Unaudited) 3,4
Consolidated Statements of Cash Flows 5
Management's Statement 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 7,8
PART II
Item 1. Legal Proceedings 9
Item 2. Change in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Matters 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Financial Data Schedule 11
ITEM 1. FINANCIAL STATEMENTS
--------------------
DATA NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
June 30, September 30,
1996 1995
_________ _________
Assets
Current Assets:
Cash and equivalents $ 154 $ 91,359
Receivables:
Trade, less allowances for bad 359,376 244,932
debts of $5,077 in 1996 and
1995, respectively
Other 3,021 5,989
Inventory, at cost 82,473 47,692
Prepaid expenses 27,458 4,633
_______ _______
Total current assets 472,482 394,605
Property and equipment, at cost 694,881 431,141
Less: Accumulated depreciation (352,262) (319,137)
_________ _________
342,619 122,004
_________ _________
Other assets 8,450 9,696
_________ _________
$823,551 $516,305
========= =========
Liabilities and Stockholders' Deficit
- -------------------------------------
Current Liabilities:
Deferred revenue $138,241 $132,478
Accounts payable 100,274 61,778
Accrued expenses 25,842 20,070
Note payable - related party 95,000
Current portion - capital leases 35,750 6,932
_______ _______
Total current liabilities 395,108 221,258
_______ _______
Note payable - related party 767,672 869,072
Capital leases, net of
current portion 119,050 753
Stockholders' Deficit:
Common stock $.0001 par value,
authorized 600,000,000 shares;
535,478,340 shares issued and
outstanding in 1996 and 327,478,340
issued and outstanding in 1995 53,547 32,747
Additional Paid in Capital 111,798
Accumulated deficit (623,624) (607,525)
________ ________
$823,551 $516,305
======== ========
See Note to Consolidated Financial Statements
2
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------------------
DATA NATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
Nine Months Ended
_______________________
June 30, June 30,
1996 1995
Net sales $ 1,966,783 $ 1,848,413
Cost of sales 1,004,327 932,893
___________ ___________
Gross profit 962,456 915,520
Selling and marketing expense 323,620 283,661
General and administrative expense 598,052 448,562
__________ __________
Operating income 40,784 202,494
Other income (expense):
Interest and other income 14,966 4,532
Interest expense, primarily related party (71,849) (69,954)
__________ _________
(56,883) (65,422)
__________ _________
Net income (loss) $ (16,099) $117,875
========== =========
Net income (loss) per share - -
Weighted average shares outstanding 362,145,006 327,478,340
=========== ===========
See Note to Consolidated Financial Statements
3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------------------
DATA NATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
Three Months Ended
_______________________
June 30, June 30,
1996 1995
_______ _______
Net sales $ 631,575 $ 598,413
Cost of sales 311,995 260,366
___________ ___________
Gross profit 319,580 338,047
Selling and marketing expense 115,990 89,478
General and administrative expense 224,471 143,478
___________ __________
Operating income (loss) (20,881) 105,091
Other income (expense):
Interest and other income 5,648 2,510
Interest expense, primarily related
party (25,855) (23,212)
__________ _________
(20,207) (20,702)
__________ _________
Net income (loss) $ (41,088) $ 84,389
========== =========
Net income (loss) per share - -
Weighted average shares outstanding 431,478,340 327,478,340
=========== ===========
See Note to Consolidated Financial Statements
4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------------------
DATA NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
_______________________
June 30, June 30,
1996 1995
________ ________
Cash flow from (used in) operating activities
Net income (loss) $ (16,099) $ 117,875
Adjustments to reconcile net income to
cash flow from operating activities:
Depreciation 33,125 38,624
Changes in assets and liabilities:
(Increase) decrease in receivables (114,444) (22,991)
(Increase) decrease in inventory (34,781) (28,189)
(Increase) decrease in prepaid
expenses (22,825) (5,358)
(Increase) decrease in other assets 4,214 (3,222)
Increase (decrease) in accounts
payable 38,495 (22,689)
Increase (decrease) in accrued
expenses 5,772 (11,680)
Increase (decrease) in deferred
revenue 5,763 (3,512)
________ _________
Total adjustments (84,681) ( 59,017)
________ _________
Cash flow from (used in)
operating activities (100,780) 58,858
Cash flow (used in) investing activities:
Purchases of property and equipment (263,740) (74,582)
Cash flow from (used in) financing activities:
Borrowings - related party (6,400) -
Repayment of related party note - (3,829)
Issuance of stock to executives 132,600
Borrowing under (repayment of) capital
leases 147,115 (9,258)
________ _______
Cash flow from (used in) financing activities 273,315 (13,087)
Increase (decrease) in cash and equivalents (91,205) (28,811)
Cash and equivalents, beginning of period 91,359 84,245
________ _________
Cash and equivalents, end of period $ 154 $ 55,434
======== =========
Supplemental information:
Income taxes paid - -
Interest paid $ 71,849 $ 69,954
======== =========
See Note to Consolidated Financial Statements
5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------------------
DATA NATIONAL CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - MANAGEMENT'S STATEMENT
- -------------------------------
In the opinion of management, the accompanying financial statements
contain all adjustments (which consist only of normal, recurring adjustments)
necessary to fairly present the Company's financial position, results of
operations, and cash flows. The operating results presented are not
necessarily indicative of the operating results for the years ending September
30, 1996 and 1995.
Reference should be made to the notes to the consolidated financial
statements included in Form 10-KSB for the year ended September 30, 1995, for
additional information.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
----------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
June 30, 1996 as Compared to September 30, 1995
-----------------------------------------------
The Company's working capital decreased from $173,347 at September 30,
1995 to $77,374 at June 30, 1996, primarily because of purchases of equipment
and increases in receivables, inventory, and prepaid expenses. The Company
was not obligated for additional capital expenditures at June 30, 1996, but
will be expected to continue to upgrade its systems given the nature of its
business and the current technology "refresh" project.
The Company remains dependent upon the Dillon note for financing, and
almost certainly would cease operations if the note were deemed in default and
called or not renewed.
The Company believes that favorable operating results will continue and
the combination of cash flow from operations and acquiring equipment through
leasing will provide liquidity for the near-term future. The Company is also
discussing the acquisition of a line of credit with various financial
institutions.
Results of Operations
For the quarter ended June 30, 1996, the Company received revenues from
database marketing services to a variety of new businesses, including the
financial services industry and retail auto dealerships, lines of business
started in the first quarter of 1996. The Company continues to provide
database marketing services to automotive repair facilities. The new business
is a result of the Company's efforts to diversify its customer base and
provide integrated database marketing services. The new business generated
approximately $85,000 of additional revenue during the three months ended June
30, 1996. The Company continues to remain dependent upon two major customers
in the automotive repair business which account for over 50% of net sales.
For the nine month period ended June 30, 1996, revenues increased
$118,370 or 6.4%. The increase is attributable to the introduction of new
services to new industries.
Cost of sales for the quarter ended June 30, 1996 increased from 43% for
the quarter ended June 30, 1995 to 49%. The cost of sales for the quarter
ended June 30, 1995 were unusually low due to a special "one-time" service
provided to a major customer. This service was not repeated for the quarter
ended June 30, 1996. For the nine months ended June 30, 1996 cost of sales
was 51% as a percentage of sales compared to 50% for the nine months ended
June 30, 1995. Selling and marketing expense increased from $89,478 for the
quarter ended June 30, 1995 to $115,990 for the quarter ended June 30, 1996.
The increase is primarily due to additional staff for the new services and new
products. For the nine months ended June 30, 1996 selling and marketing
expense increased $39,959 for reasons identical to the quarter, explained
above.
General and administrative (G&A) expenses increased $80,993 from $143,478
for the quarter ended June 30, 1995 to $224,471 for the quarter ended June 30,
1996. For the nine month period ended June 30, 1996 G&A increased by $149,490
over the nine month period ended June 30, 1995. Executive salaries increased
by $31,200 in May of 1996 as a result of stock that was awarded to certain
executives. Reference should be made to the Form 8-K dated May 15, 1996.
The remaining amount of the increase in G&A was due to costs the Company
continues to incur in their information technology department related to the
replacement of their computer system, used for production and for maintenance
of the database. In addition to the costs reported as G&A expenses, the
Company has expended $59,500 in consulting, which has been capitalized and
7
reported as property and equipment. The consultant has been advising the
Company on the new computer system and will assist the Company in the
transition to the new system. These costs will be amortized over four years,
the estimated useful life of the asset, beginning on the date the new system
is placed in service and the old system is removed.
Interest expense is substantially related to the Dillon note, and is
expected to remain a significant cost in the near future.
8
DATA NATIONAL CORPORATION
FORM 10-QSB
June 30, 1996
PART II
ITEM 1. Legal Proceedings
The Company was a defendant in a lawsuit, as more fully described in the
Form 10-K filed by the Company for the year ended September 30, 1995. The
plaintiffs in the suit asked for $5,000,000 in damages.
In January of the 1996 the Company was awarded a summary judgement
against the plaintiff. The plaintiff appealed the judgement. In May of 1996
the Company settled the lawsuit for no additional costs.
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.
A report on Form 8-K was filed on May 15, 1996 with regard to Items 5 and
7. No financial statements were filed in connection therewith.
9
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) DATA NATIONAL CORPORATION
BY (Signature) /s/ Richard S. Simms
(Dated) August 12, 1996
(Name and Title) Richard S. Simms, CFO
(6-30-95.10q)
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