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, 1997 OR
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[ ] 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 2-95050-D
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DATA NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 84-0958983
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11415 West, I-70 Frontage Road-North
Wheat Ridge, Colorado 80033
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 431-1933
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No___.
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.[ ]
Registrant's revenues for the fiscal year ended September 30, 1997 were
$3,897,350.
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As of December 31, 1997, 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 trading market for the Registrant's shares.
As of December 31, 1997, there were 1,592,565 shares of the Registrant's
$.001 par value common stock outstanding.
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PART I
Item 1. Description of Business
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(a) Business Development.
-------------------------
Data National Corporation (the Company) was formed under the laws of the
State of Colorado in November 1982. The Company currently owns 97.8% of the
outstanding Common Stock of Data National Inc. (DNI). DNI owns 100% of the
shares Service Business Systems, Inc. (SBS) and National COM-LINK Systems,
Inc. (NCL). The Company acts as a holding company for DNI and its
subsidiaries and coordinates their activities.
Most of the revenue of the Company is generated by SBS. NCL receives
royalties from licensing a trademark and, in 1996, recognized revenue that
was previously deferred as a result of the termination of a contract for the
sale of hardware and software products.
(b) Business of Registrant.
---------------------------
Principal Products and Services and Their Markets
-------------------------------------------------
The Company derives revenues from products and services provided by its
subsidiary, SBS. Since inception, SBS has provided database marketing
services to the automotive industry, specifically service stations of major
oil companies and independent auto repair facilities. Services provided to
clients in the automotive industry accounted for 83% and 88% of its revenues
in fiscal 1997 and fiscal 1996, respectively. In fiscal 1996, SBS began
expanding its client base to include auto dealerships and customers in the
financial services and entertainment industries. SBS continues to expand
into other industries.
By utilizing proprietary software developed internally, SBS analyzes a
client's customer database to develop segmentation profiles of the client's
customers. By developing a better understanding of who their customers are
and what their needs and expectations are, SBS assists its clients in
improving their business performance.
Once these customer segmentation profiles are developed, SBS develops
customer-centric programs to assist clients in enhancing customer loyalty,
attracting new customers and increasing customer retention.
The following are some examples of programs which have been developed by
SBS:
Existing Customer Programs
--------------------------
- Thank you cards
- Service reminders for the automotive market (tune-ups, oil
changes, etc.)
- Safety reminders for the automotive market (brakes, tires, shocks,
etc.)
- Holiday greeting cards
- Point of sale coupons
- Customer surveys
- Newsletters
- Preferred customer programs, including membership cards and
coupon books
- Telephone surveys
The first three programs have been marketed under the name Autotrac .
This program is designed to retain customers through periodic reminders for
services.
New Customer Programs
---------------------
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- Promotions targeted to new residents and other customers matching
the segmentation profile in the client's market area.
- Informational mailings (i.e., interest rate updates or real estate
trends) to targeted customers
- Referral request programs
SBS also implements these programs for clients by maintaining and managing
the customer's database, selecting target customers for the various programs
and mailing the materials on the client's behalf. SBS can also assist
clients by obtaining names of potential customers from outside sources which
match the client's current segmentation profiles. SBS also generates sales
by providing artistic and graphic design services used in developing these
programs.
SBS also provides marketing and technical consulting services to its clients
and facilitates the printing of the marketing materials to be used in the
customer specific marketing programs.
SBS expanded its customer base in fiscal 1996 with the addition of commonly
controlled auto dealerships and a mortgage loan origination company. The
Company expanded its customer base in 1997 with the addition of two casino
clients located in an area with limited stakes gambling as well as a
significant client in the automotive industry. The Company has also begun
to provide mailing services, on a limited basis, to utilize available
production capacity.
Employees
---------
SBS employs all of the employees of the Company. As of September 30,
1997, SBS had 35 full-time employees working in the office of the Company.
In addition, SBS had 11 employees for coding and inputting the information
received from repair facilities into the SBS computer system, some of whom
are part-time. These employees are home-based.
Sources and Availability of Raw Materials
-----------------------------------------
The Company has experienced no significant difficulty with the delivery
and availability of paper supplies that it uses in its business, and no
difficulty is forecast for the immediate future.
Patents, Trademarks, Licenses, Franchises, Concessions, Etc.
------------------------------------------------------------
The Company has no patent protection for its existing products which 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.
The subsidiaries of the Company hold two trademarks for the names Autotrac
and Autolink.
Seasonality
-----------
SBS sells holiday greeting cards in the first quarter of the fiscal year
ending September 30. This program has resulted in seasonal sales of $225,010
and $223,962 for the years ended September 30, 1997 and 1996, respectively.
There are no other seasonal factors to the Company's business.
Dependence Upon Small Number of Customers
-----------------------------------------
During the fiscal year ended September 30, 1997, the Company received
approximately 65% of its consolidated gross revenues from sales to only
three of its customers. Two of these customers, Penske Auto Centers, Inc.
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and Sun Company, Inc., each accounted for sales in an aggregate amount of
more than 10% of the Company's consolidated revenues during the past fiscal
year, and the loss of either of such customers would have a material adverse
effect on the Company and its subsidiaries taken as a whole.
Competition
-----------
SBS competes in the Technology-Enabled Relationship Marketing (TERM)
services business. In defining such systems, the Gartner Group, an
information technology advisory company, maintains definitions for first and
second generation capabilities. Based on Gartner's criteria, SBS's offering
overlaps both generations.
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First generation database and relationship marketing services are
characterized as product centric, list selection systems that typically
target and send monologues at customers. They use proprietary file
structures and deal with aggregate summary data only.
Second generation offerings are more customer-centric in their focus in that
they initiate and maintain dialogues with customers. These systems are most
often supported by "open" relational database technology with massive volumes
of actual encounter/transaction details.
Although the majority of SBS' attention is focused on the development and
marketing of second generation capabilities, the Company still supports and
invites client business that by Gartner's definition would be considered
first generation in nature.
Gartner Group estimates that as many as 70% of the database marketing systems
and services in use today are still in their first generation.
Market-leaders that supply such first generation offerings include: Polk,
Metromail, Data Base America, Axiom, Harte-Hanks, Mey&Speh, David Sheppard,
Okra, and CIC.
SBS believes that there are approximately 20 companies competing directly
with it 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. Another
large competitor is IDS, a division of AON Insurance Company, based in
Chicago. 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.
SBS believes it can effectively compete with these companies. SBS provides
valuable data and marketing strategies in addition to providing the mailing
services. SBS manages large databases for automotive businesses, and
provides marketing, creative, and customer-centric contact services. SBS
also provides management reports to assist its customers in managing their
businesses and contacting their customers.
SBS markets its services to the automotive aftermarket through contacts made
at the corporate level of oil companies and automotive repair centers. SBS
has three sales people making calls on potential customers. Some of the
customers are contacted through telephone sales. SBS also employs customer
service representatives that sell products to existing customers in addition
to providing customer service. SBS also has one employee devoted to market
research and development of new products for new and existing markets.
In fiscal 1996, SBS expanded its marketing and sales efforts into new
markets, as follows:
Automotive Dealerships - in Colorado and California.
----------------------
Financial Services - specifically the mortgage loan business in Colorado.
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Entertainment - specifically the gaming industry in Colorado.
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The President of the Company has directed the sales efforts into the new
markets with assistance from the sales personnel and the Vice President of
Marketing
Research and Software Development Expenditures
-------------------------------------
Although no costs were classified as research and development during each
of the past two fiscal years, SBS expends considerable effort for software
improvements on an annual basis. Such effort is a necessary element for
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maintaining the competitiveness of its software modules, and such costs are
recorded as normal operating expenses.
SBS is developing a proprietary database application as the basis for
its core business functions. SBS has capitalized $310,064 as deferred
computer software development costs as of September 30, 1997. The costs
deferred include the costs of outside consultants and salary and benefit
costs of programmers hired upon completion of the design phase, to complete
the programming of this software.
During the fourth quarter of 1997, the Company performed a functional
evaluation of the project and the costs capitalized to date and determined
that costs previously capitalized for certain modules should be written
down as the modules did not perform as designed and were abandoned. This
write down totaled $113,661.
Upon completion of the software, the capitalized costs will be amortized
using the straight-line method over a useful life of 3 years.
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
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The Company occupies office space under one 3-year lease that expires in
February 1999 and requires an aggregate monthly payment of $6,375.
Item 3. Legal Proceedings
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There are no legal proceedings to report.
Item 4. Submission of Matters to a Vote of Security Holders
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On September 30, 1996, the Company held its Annual Meeting of Shareholders.
At the subject annual meeting, Richard S. Simms, Ray E. Dillon III and
Donald V. Warriner were elected to serve as directors of the Company until
the next Annual Meeting of Shareholders or until their death, resignation
or removal, whichever is earliest. There are no other directors whose terms
of office as directors continued after the date of the subject meeting.
The following matters were voted upon at the subject meeting:
(1) Election of Directors
Name of Nominee Votes in Favor Votes Against Abstentions
--------------- -------------- ------------- -----------
Richard S. Simms 462,690,624 - 136,787,716
Ray E. Dillon III 462,690,624 - 136,787,716
Donald V. Warriner 462,690,624 - 136,787,716
(2) The shareholders approved a reverse stock split whereby one new share of
the Company's Common Stock was issued in exchange for each 400 shares of
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the Company's then currently outstanding Common Stock. To the extent
that this reverse stock split resulted in any shareholder owning less
than a single full share of the Company's Common Stock, the Company
agreed to pay cash for each such fractional share in an amount equal to
the appropriate fraction of $.40 per whole share (which represented the
fair value of a whole share after the consummation of the proposed
reverse stock split as determined by the Company's Board of Directors).
Votes in Favor Votes Against Abstentions
-------------- ------------- -----------
462,690,624 - 136,787,716
(3) The shareholders voted to amend the Company's Articles of Incorporation
to reduce its authorized capital from 600,000,000 shares of $0.0001 par
value Common Stock to 100,000,000 shares, and to change the par value of
the Company's shares from $0.0001 per share to $0.001 per share.
Votes in Favor Votes Against Abstentions
-------------- ------------- -----------
462,690,624 - 136,787,716
(4) The shareholders voted to engage the services of a nationally recognized
auditing firm.
Votes in Favor Votes Against Abstentions
-------------- ------------- -----------
462,690,624 - 136,787,716
Subsequently, the Board of Directors engaged the firm of KPMG Peat
Marwick LLP to serve as the Company's independent auditors.
(4) In connection with such meeting, the Company did not enter into any
settlement arrangement with any person terminating any solicitation
subject to Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934.
No other matters have been submitted to a vote of security holders during
the fiscal year ended September 30, 1997.
PART II
Item 5. Market for Company's Common Equity and Related Shareholder Matters
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(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 $.001 par value
Common Stock at September 30, 1997 was approximately 360, after giving effect
to the Company's 400 to 1 reverse stock split.
(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.
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Item 6. Management s Discussion and Analysis or Plan of Operation
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Year Ended September 30, 1997 as Compared to the Year Ended September 30,
1996
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Revenue for the year ended September 30, 1997 was $3,897,350 compared to
$2,666,148 for the year ended September 30, 1996. Almost all of the revenue
for the Company is generated by SBS, with the exception of licensing revenue
recorded by NCL of $10,000 for fiscal 1996 which did not recur in fiscal
1997. In addition, NCL recorded revenue in fiscal 1996 in the amount of
$120,486 as a result of termination of a contract for hardware and software
that was entered into in 1987. NCL fulfilled its obligation under the
contract and recognized the revenue that had previously been deferred. The
increase in revenue for SBS is primarily attributable to a new client in the
automotive industry, which generated revenue of $1,541,841 in fiscal 1997.
Revenues from other automotive industry clients decreased in 1997 from 1996.
This was the result of SBS focusing its efforts on obtaining larger, more
profitable, contracts and continuing to expand into new industries.
Revenues generated from these new industries are as follows:
1997 1996
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Automotive Dealerships $134,707 $104,501
Mortgage Loan 98,643 113,709
Entertainment 90,836 -
Mailing Services 347,759 55,959
SBS sells holiday greeting cards in the first quarter of its fiscal year.
This program resulted in seasonal sales of $225,010 and $223,962 for the
years ended September 30, 1997 and 1996, respectively. There are no other
seasonal factors to the Company's business.
Cost of sales as a percentage of revenue amounted to 66% and 56% in fiscal
1997 and fiscal 1996, respectively. The cost of sales was lower as a
percentage of revenue in fiscal 1996 due to the recognition of the
revenue in NCL that had previously been deferred, and the fact that there
was no cost of sales associated with the revenue recognized. Excluding this
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additional revenue, cost of sales as a percentage of revenue for fiscal 1996
was 59%. The remainder of the increase in 1997 was primarily due to: an
increase in depreciation expense of $30,600 and an increase in the cost of
maintenance agreements of $15,400 due to the purchase of new equipment; and
an increase in salaries during the period of approximately $112,900 primarily
due to the addition of data processing and outbound customer service
personnel as well as production personnel.
Selling and marketing expenses increased to $367,881, or 9% of revenue, in
fiscal 1997 from $287,676, or 11% of revenue, in fiscal 1996. The total of
these expenses has increased due to the growth of the Company, while
decreasing as a percentage of sales. Salaries, wages and commissions
increased approximately $53,100 due to the hiring of additional sales
personnel and increased commissions as a result of increased sales. In
1996 these expenses included approximately $7,000 of one time costs to
produce a video about the Company and its products for use in sales and
marketing. Travel, meals and entertainment expenses have increased
approximately $48,900 due to increased travel to work with new and existing
clients.
General and administrative expenses increased to $1,011,914, or 26% of
revenue, in fiscal 1997 from $751,472, or 28% of revenue, in fiscal 1996.
The total of these expenses has increased due to the growth of the
Company, while decreasing as a percentage of sales.
The increase in 1997 was primarily due to increased costs in
the following areas:
Approximately $25,800 of this increase is rent for additional space.
Due to additional staffing in the Information Technology Department,
salaries, taxes and benefits have increased approximately $81,000.
A Vice President of Marketing was hired during the third quarter and the
President and Vice President of Operations received compensation
increases at the beginning of the calendar year resulting in increases
in compensation expense of approximately $77,000.
Bonuses for two officers of the Company were approximately $35,200 in
1997. There were no bonuses paid in 1996.
Interest expense for 1997 was $135,875 compared to $95,546 for 1996. The
interest to related parties decreased approximately $16,000 due to the
conversion of debt to equity and a resulting decrease in the principal
amount of the loan. This was offset by interest of approximately $25,000
on the new bank line of credit. Approximately $29,300 of the increase was
due to additional equipment purchased by SBS under lease financing
arrangements.
The Company did not record any income tax benefit due to the uncertainty
over the Company's ability to realize its deferred tax asset.
Liquidity and Capital Resources
- -------------------------------
In fiscal 1997, cash and cash equivalents increased by $11,351. Cash of
$76,311 was provided by operating activities in fiscal 1997. The Company
used $208,518 of cash for the acquisition of equipment and development of the
Company's proprietary software for internal use in fiscal 1997. Cash
provided by financing activities amounted to $143,558, primarily representing
proceeds from the issuance of Common Stock.
Trade receivables decreased $22,072 due to a significant ($43,000) special
project which had been completed and billed in September 1996 and this
project did not recur in 1997. This was offset by an increase in sales of
$25,000 in September of 1997 from September of 1996. Prepaid postage
increased $44,646 for additional postage purchased the last week of
September 1997 in preparation for a large project completed the first
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week of October 1997. Prepaid expenses increased $13,266 for the purchase of
names in preparation for a targeted mailing for a client. Other assets
increased a total of $38,136. This increase is attributable to $9,300 for
costs incurred to perfect the Company's interests in its trademarks, $11,600
for loan fees incurred to obtain the revolving loan facility from Norwest
Business Credit, $4,000 for rent and utility deposits for additional space,
and $6,300 for deposits on equipment leases. These increases were funded by
increases in accounts payable and accrued expenses. Deferred revenue
increased $61,309 for prepayments of postage costs by two clients.
The Company's principal source of liquidity includes cash and cash
equivalents of $15,792 at September 30, 1997 and cash provided by its
operations. The Company had negative working capital in the amount of
$346,107 at September 30, 1997. The Company believes that internal cash
flow generated from the holiday card program during the quarter ended
December 31, 1997, and new and existing business, short-term borrowings,
capital leases to be obtained for the purchase of new equipment, proceeds
from the private placement of the Company's Common Stock and long-term
borrowings will enable the Company to meet its currently projected working
capital needs and cash requirements though at least the end of the 1998
fiscal year.
The Company has had an accumulated deficit from losses incurred prior to
September 30, 1991. The Company was profitable for the fiscal years ended
September 30, 1991 through September 30, 1996 which reduced the deficit in
those years. For the fiscal year ended September 30, 1997 the Company had a
net loss of $(354,879) which increased the deficit. This was offset by net
proceeds from the private placement of the Company's Common Stock in the
amount of $174,895 and the exchange of $150,000 of the debt to the related
party for 37,500 shares of Common Stock. The deficit was funded in the past
by proceeds from the issuance of Common Stock and notes from related parties.
In December of 1996 the Company commenced a private placement of its common
stock. Through this offering, which terminated on June 30, 1997, the Company
has received $275,000: $125,000 in cash and an additional $150,000 from the
related parties in the form of a reduction on the $597,272 note payable to
the related parties. These funds were used for the purchase of new computer
equipment and software, marketing expenses and to fund working capital needs.
SBS had borrowed $74,723 as of September 30, 1997 under a bank line of
credit from Norwest Business Credit. This line of credit was entered into
on January 3, 1997 and was funded on January 15, 1997. The initial
termination date is December 31, 1998. This line of credit bears interest
at the rate of 5% over Norwest's prime lending rate with a minimum interest
charge of $7,500 per quarter. At September 30, 1997 approximately
$125,000 was available under the facility.
On July 24, 1997, the Company commenced a new private placement. Under the
terms of the offering, the Company is seeking to raise a maximum of $725,000
(181,250 shares at $4.00 per share). There was no minimum for this private
placement. The Company has received $57,000 as of September 30, 1997 through
this offering. These proceeds were used for the purchase of new computer
equipment and software, marketing expenses and to fund working capital needs.
Costs incurred in raising these additional funds are expected to total 10,000.
SBS had borrowed $157,000 as of September 30, 1997 from related parties to
finance the Company's operations and capital investments. These borrowings
were made on a short term basis. SBS also entered into capital
leases to finance the acquisition of $91,964 of equipment during fiscal 1997.
The Company refinanced certain existing indebtedness to two shareholders on
January 10, 1996. One of the shareholders is now Chairman of the Board of
Directors and owns or controls 243,799 shares of the Company's Common Stock.
The principal amount of the note is $595,272, including accrued interest on
prior indebtedness of $192,072. Interest is payable at 10% and the note is
due on or before October 1, 2001.
On January 3, 1997, in anticipation of obtaining a line of credit from a
lending institution, the related party restated their note and entered into
a subordination agreement. The related party required the note to be
amended to bear interest at the rate of 10% per annum compounded daily. At
the same time the related party exchanged $150,000 of the debt for 37,500
shares of Common Stock at a price of $4.00 per share.
On May 15, 1996, three officers of the Company purchased $93,600 of the note
payable to related parties from the related parties in exchange for notes
payable to related parties from the officers. The officers exchanged
the notes for 390,000 shares of Common Stock at a price of $0.24 per share.
On July 31, 1996, the Chief Financial Officer of the Company purchased
$32,000 of the note payable to related parties from the related parties in
exchange for a note payable to the related parties from the officer. The
Chief Financial Officer exchanged the note to exercise a warrant to purchase
160,000 share of Common Stock of the Company at a price of $0.20 per share.
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On December 10, 1997 the Company closed on a loan of $1,500,000 with
Sirrom Investments, Inc. (Sirrom). The proceeds of the loan will be
utilized for working capital, to pay a portion of the existing indebtedness
to certain shareholders, and to pay off the senior secured bank credit
facility. The loan provides for a stated interest rate of 13.75% per annum,
payable monthly. Principal is due on December 10, 2002.
The loan, which is secured by all of the assets of the Company, is
subordinate only to the existing $500,000 bank line of credit. The bank line
of credit remains available to the Company under the terms previously
described.
In connection with the loan, the Company issued warrants to Sirrom to
purchase up to 13% of the Common Stock of the Company at a purchase price of
$.01 per share. There are certain provisions of the loan agreement
which could increase the amount of warrants to be issued.
The Company is required to issue warrants up to an additional 5% of the
Common Stock of the Company if the Company does not meet certain income
performance measures for the yeatr ending September 30, 1998, and up to
an additional 3.75% if the loan is not paid by December 10, 2002.
The Company also paid certain fees in obtaining the loan, including a
$37,500 fee to Sirrom to process the loan, a $105,000 fee to an investment
banking firm that assisted in obtaining the loan and closing the loan, and
fees to attorneys of approximately $35,000.
Impact of the year 2000 Issue
-----------------------------
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company's proprietary database application, the basis for its core
business functions, has been developed so that it will properly utilize
dates beyond December 31, 1999. In addition, the Company has recently
purchased new accounting software and this software has also been developed
to properly utilize dates beyond December 31, 1999. The Company's
Information Technology personnel have reviewed the remaining software and
hardware applications used by the Company and determined that no additional
work is required to remediate the Company's Year 2000 issue.
The Company has initiated communications with all of its significant
suppliers and large clients to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. There can be no guarantee that the systems of other companies on
which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have material adverse effect on the Company.
The Company has determined it has no exposure to contingencies related to
the Year 2000 Issue for the products it has sold.
New Accounting Standards
- -------------------------
In February of 1997, the FASB issued Statements of Financial Accounting
Standards No. 128 Earnings per Share ("SFAS 128") effective for years ending
after December 15, 1997. Statement No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share ("EPS")
for entities with publicly held Common Stock or potential Common Stock. The
Company will adopt SFAS 128 in its financial statements for the quarter
ending December 31, 1997. The adoption is not expected to have a material
effect on the reported earnings (loss) per share of the Company.
In June of 1997, the FASB issued Statements of Financial Accounting
Standards No. 130. Reporting Comprehensive Income ("SFAS 130"), and No. 131.
Disclosure About Segment of An Enterprise and Related Information
("SFAS 131"), effective for years beginning after December 15, 1997, SFAS
130 established standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
The Company has not yet adopted SFAS 130. The Company will comply with the
reporting and display requirements under this statement when required. SFAS
131 establishes standards for reporting information about operating segments
and the methods by which such segments were determined. The Company
has not yet adopted SFAS 131. As the Company currently operates within one
industry segment, the reporting of such information is not expected to be
significant.
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Item 7. Financial Statements
- -----------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Data National Corporation
We have audited the consolidated balance sheets of Data National
Corporation and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and
cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we 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. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated 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, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
December 10, 1997
-13-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and 1996
Assets (Note 4)
1997 1996
--------- ---------
Current Assets
Cash and cash equivalents. . . . . . . . . . .$ 15,792 $ 4,441
Receivables
Trade less allowance for bad debts of
$5,077 in 1997 and $5,077 in 1996. . . . . . 320,520 342,592
Other . . . . . . . . . . . . . . . . . . . . . . 8,104 15,305
Inventory, at cost . . . . . . . . . . . . . . . . 53,781 63,354
Prepaid postage . . . . . . . . . . . . . . . . . 45,040 394
Prepaid expenses . . . . . . . . . . . . . . . . . 54,029 35,129
------- -------
Total current assets . . . . . . . . . . . . . . .497,266 461,215
Property and equipment, at cost (Note 3) . . . . . . .884,807 724,414
Less accumulated depreciation. . . . . . . . . . (466,654) (373,709)
--------- ---------
418,153 350,705
------- -------
Deferred computer software development costs . . . . 196,403 169,977
Other assets . . . . . . . . . . . . . . . . . . . . 44,051 12,871
---------- ----------
$1,155,873 $ 994,768
========== ==========
Liabilities and Shareholders' Deficit
-------------------------------------
Current Liabilities
Short-term borrowings - related parties
(Note 2) . . . . . . . . . . . . . . . . $ 157,000 $ 155,000
Short-term borrowings - bank line of credit
(Note 4) . . . . . . . . . . . . . . . . 74,723 -
Current portion - capital lease obligations
(Note 5). . . . . . . . . . . . . . . . 113,154 75,401
Accounts payable . . . . . . . . . . . . . . . 268,939 138,426
Accrued interest . . . . . . . . . . . . . . . 48,684 7,242
Accrued expenses . . . . . . . . . . . . . . . 93,145 74,029
Deferred revenue . . . . . . . . . . . . . . . 87,728 26,419
------- -------
Total current liabilities. . . . . . . . . . 843,373 476,517
------- -------
Note payable to related parties (Note 2) . . . . . 595,272 743,472
Capital lease obligations, net of current portion
(Note 5) . . . . . . . . . . . . . . . . 124,491 155,958
Shareholders' Deficit
Common stock $.001 par value, authorized
100,000,000 shares; 1,582,165 and 1,498,190
shares issued and outstanding at September 30,
1997 and 1996, respectively (Note 7). . . . . . 1,582 1,498
Additional paid-in capital . . . . . . . . . . . 516,761 188,050
Accumulated deficit. . . . . . . . . . . . . . . (925,606) (570,727)
--------- ---------
(407,263) (381,179)
-14-
Commitments
$ 1,155,873 $ 994,768
=========== ==========
_______________________________________
See accompanying notes to consolidated financial statements.
-15-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended September 30, 1997 and 1996
1997 1996
-------- ---------
Net sales $3,897,350 $2,666,148
Cost of sales
Materials, postage, labor and other costs 2,509,492 1,455,475
Depreciation and amortization 75,454 44,819
--------- ---------
Gross profit 1,312,404 1,165,854
Selling and marketing expense 367,881 287,676
General and administrative expense 1,011,914 751,472
Impairment of software development costs 113,661 -
Depreciation and amortization 24,447 9,753
---------- -------
Operating income (loss) (205,499) 116,953
Other income (expense)
Interest and other income 1,817 16,714
Interest expense, including amounts to
related parties of $68,020 in 1997 and
$83,988 in 1996 (135,875) (95,546)
Other expense (15,322) (1,323)
--------- --------
(149,380) (80,155)
----------- ----------
Net income (loss) $ (354,879) $ 36,798
=========== =========
Earnings (loss) per share $ (0.23) $ 0.04
=========== =========
Weighted average shares outstanding 1,544,966 1,040,922
=========== =========
-16-
- ----------------------------------------------
See accompanying notes to consolidated financial statements.
-17-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
Years Ended September 30, 1997 and 1996
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
-------- ------- --------- -----------
Balance, October 1, 1995 . . 818,190 $ 818 $ 31,929 $(607,525)
Issuance of common stock for
reduction of note payable to
related parties. . . . . . . 550,000 550 125,051 -
Issuance of common stock for
services . . . . . . . . . . 137,500 138 32,862 -
Common stock repurchased and
retired. . . . . . . . . . . (7,500) (8) (1,792) -
Net income . . . . . . . . - - - 36,798
--------- ------ -------- --------
Balance, September 30, 1996. 1,498,190 1,498 188,050 (570,727)
Issuance of common stock for
reduction of note payable to
related parties . . . . . . . 37,500 38 149,962 -
Issuance of common stock for
services . . . . . . . . . . 975 1 3,899 -
Issuance of common stock,
net of offering costs of $7,105 . 45,500 45 174,850 -
Net loss - - - (354,879)
--------- ------- -------- ----------
Balance, September 30, 1997. . . 1,582,165 $ 1,582 $516,761 $(925,606)
========= ======= ======== ==========
-18-
- ---------------------------------------------
See accompanying notes to consolidated financial statements.
-19-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended September 30, 1997 and 1996
1997 1996
------ ------
Cash flow from operating activities
Net income(loss). . . . . . . . . . . . . . $ (354,879) $ 36,798
Adjustments to reconcile net income to cash
flow from operating activities
Depreciation and amortization . . . . . . . . 99,901 54,572
Impairment of software development costs 113,661 -
Common stock issued for services. . . . . . . 3,900 33,000
Changes in assets and liabilities
(Increase) decrease in trade receivables. . . 22,072 (97,660)
(Increase) decrease in other receivables. . . 7,201 (9,316)
(Increase) decrease in inventory. . . . . . . 9,573 (15,662)
(Increase) decrease in prepaid postage. . . . (44,646) 1,098
(Increase) in prepaid expenses. . . . . . . . (13,266) (31,988)
(Increase) in other assets. . . . . . . . . . (19,588) (3,175)
Increase in accounts payable. . . . . . . . . 130,514 76,649
Increase in accrued interest. . . . . . . . . 41,443 7,242
Increase in accrued expenses. . . . . . . . . 19,116 53,959
Increase (decrease) in deferred revenue . . . 61,309 (106,059)
-------- ---------
Total adjustments . . . . . . . . . . . . 431,190 (37,340)
------- ---------
Cash provided by (used in) operating activities 76,311 (542)
------- ---------
Cash flow from investing activities
Purchases of property and equipment . . . . . . (68,429) (26,399)
Deferred computer software development costs. . (140,089) (169,977)
--------- ---------
Cash used in investing activities . . . . . . . (208,518) (196,376)
--------- ---------
Cash flow from financing activities
Short-term borrowings from related parties. . . 358,000 340,000
Short-term borrowings from bank line of credit. 3,085,949 -
Capitalized loan fees . . . . . . . . . . . . . (18,548) -
Sale of common stock, net of offering costs . . 174,895 -
Increase in note payable related party. . . . . 1,800 -
Repayment of short-term borrowings from related
parties . . . . . . . . . . . . . . . . . . . . (356,000) (185,000)
Repayment of short-term borrowings from bank
line credit . . . . . . . . . . . . . . . . . .(3,011,226) -
Repayment of capital lease obligations. . . . (91,312) (43,200)
Common stock repurchased and retired. . . . . - (1,800)
---------- ---------
Cash provided by financing activities . . . . 143,558 110,000
---------- ---------
Increase (decrease) in cash and cash equivalents. 11,351 (86,918)
Cash and cash equivalents, beginning of year. . . 4,441 91,359
--------- --------
Cash and cash equivalents, end of year. . . . . . $ 15,792 $ 4,441
========= ========
Supplemental cash flow information
Property and equipment acquired under
capital leases . . . . . . . . . . . . . . . $ 91,964 $254,864
========= ========
Common stock issued for reduction of note
payable to related parties. . . . . . . . . . $ 150,000 $125,601
========= ========
Income taxes paid . . . . . . . . . . . . . . . $ - $ -
========= ========
-20-
Interest paid . . . . . . . . . . . . . . . . . $ 87,985 $ 87,612
========= ========
- --------------------------------------------
See accompanying notes to consolidated financial statements.
-21-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(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. The Company currently owns 97.8% of
the outstanding Common Stock of Data National Inc. (DNI). DNI owns 100% of
the shares Service Business Systems, Inc. (SBS) and National COM-LINK
Systems, Inc. (NCL). The Company acts as a holding company for DNI and its
subsidiaries and coordinates their activities.
NCL receives royalties from licensing a trademark and, in 1996,
recognized revenue that was previously deferred as a result of the
termination of a contract for the sale of hardware and software products.
The Company derives revenue from products and services provided by its
subsidiary, Service Business Systems (SBS), which is the Company's only
operating subsidiary. Since inception, SBS has provided database marketing
services to the automotive industry (service stations of major oil companies
and independent auto repair facilities). These clients accounted for 83% and
88% of the Company's net sales in fiscal 1997 and fiscal 1996, respectively.
In fiscal 1996, SBS began expanding its client base to include auto
dealerships and customers in the financial services and tourism industries.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions are eliminated in consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
-22-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to
the 1997 presentation.
Cash Equivalents
----------------
The Company considers investments with an original maturity of three
months or less to be cash equivalents.
Fair Value of Financial Instruments
-----------------------------------
The Company estimates the fair value of its monetary assets and
liabilities based upon existing interest rates related to such assets and
liabilities compared to current rates of interest for instruments with a
similar nature and degree of risk. The Company estimates that the carrying
value of all its monetary assets and liabilities approximates fair value as
of September 30, 1997.
Inventory
---------
Inventory consists of card stock and is carried at the lower of cost
or market. Cost is determined on a first-in-first-out basis.
Property and Equipment
----------------------
Property and equipment is stated at cost, and is depreciated over
useful lives ranging from 5 to 7 years, primarily using the straight-line
method.
-23-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Impairment of Long-Lived Assets
-------------------------------
Statement of Financial Accounting Standards No. 121 Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of (SFAS No. 121), was adopted by the Company effective October 1, 1996. SFAS
No. 121 requires that impairment losses be recorded on long-lived assets used
in operations when indicators of impairment are present and the
undiscounted future cash flows estimated to be generated by those assets
are less than the assets carrying amount. The adoption
of SFAS No. 121 had no effect on the Company's financial statements.
Deferred Computer Software Development Costs
--------------------------------------------
The Company is developing a proprietary database application as the
basis for its core business functions. The Company has capitalized $310,064
as deferred computer software development costs as of September 30, 1997.
The costs deferred include the costs of outside consultants and salary and
benefit costs of programmers hired upon completion of the design phase, to
complete the programming of this software.
During the fourth quarter of 1997 the Company performed a functional
evaluation of the project and the costs capitalized to date and determined
that costs previously capitalized for certain modules should be written
down as the modules did not perform as designed and were abandoned. This
write down totaled $113,661.
Upon completion of the software, the capitalize costs will be
amortized using the straight-line method over a useful life of 3 years.
Other Assets
------------
Costs of perfecting the Company's interests in its trademarks have
been capitalized as part of the cost of the trademarks. The Company
capitalized $9,329 in fiscal 1997 which is being amortized
over an estimated life of 10 years.
-24-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
The Company obtained a revolving loan facility from Norwest Business
Credit on January 3, 1997. The Company incurred $18,458 of costs to obtain
this facility, which have been capitalized. These costs are being amortized
over 2 years which is the initial term of the facility. Accumulated
amortization totaled $6,956 at September 30, 1997.
Deferred Revenue
-----------------
Prepayments for products are recorded as deferred revenue until the
products are delivered.
Reverse Stock Split
-------------------
All share amounts, share prices, and per share amounts have been
adjusted to give effect to a 400 to 1 reverse stock split that was effective
on September 30, 1996.
Sales and Credit Risk
---------------------
Sales are recognized upon completion of services or mailing of
marketing materials, as applicable.
Sales are made by extending credit to customers on a short-term
basis, using informal credit evaluations, and are on an uncollateralized
basis.
Advertising
-----------
The Company expenses advertising costs as incurred. Such costs
amounted to $13,087 and $10,415 in fiscal 1997 and fiscal 1996, respectively.
-25-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Income Taxes
------------
The Company utilizes the asset and liability method of accounting
for income taxes, as prescribed by Statement of Financial Accounting
Standards No. 109 (SFAS 109). Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply in the
years in which these temporary differences are expected to be recovered or
settled. Changes in tax rates are recognized in income in the period that
includes the enactment date.
Stock-Based Compensation
------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS 123), effective for the fiscal years beginning after
December 15, 1995. This statement defines a fair value method of accounting
for employee stock options and encourages entities to adopt that value
method of accounting for its stock compensation plans. SFAS 123 allows an
entity to continue to measure compensation costs for these plans using the
intrinsic value method of accounting as prescribed in Accounting Pronouncement
Bulletin Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).
The Company has elected to continue to account for its employee stock
compensation plans as prescribed under APB 25. The pro forma disclosure
of net loss and loss per share required for SFAS 123 are included in Note 7.
Net Earnings (Loss) Per Share of Common Stock
---------------------------------------------
Net earnings (loss) per share is computed based on the weighted
average number of common shares, and when dilutive, common equivalent shares
outstanding during the year.
-26-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(2) Related Party Transactions
- --------------------------------
Short-Term Borrowings - Related Parties
---------------------------------------
The Company has borrowed funds to meet short-term working capital
needs from two of its shareholders. Interest on the unpaid balance is at
the rate of 10% per annum. The principal balance is payable on December 31,
1997.
Interest expense on the short-term borrowings to related parties
amounted to $4,513 and $1,414 in fiscal 1997 and fiscal 1996, respectively.
Note Payable to Related Parties
-------------------------------
The Company refinanced certain existing indebtedness to two
shareholders on January 10, 1996. One of the shareholders is now Chairman
of the Board of Directors and owns or controls 240,049 shares of the
Company's Common Stock. The principal amount of the note is $595,272,
including accrued interest on prior indebtedness of $192,072. Interest is
payable at 10% and the note is due on or before October 1, 2001.
On January 3, 1997, in anticipation of obtaining a line of credit
from a lending institution, the related party restated their note and entered
into a subordination agreement. The related party required the note to be
amended to bear interest at the rate of 10% per annum compounded daily. At
the same time the related party exchanged $150,000 of the debt for 37,500
shares of Common Stock at a price of $4.00 per share under the terms of a
private placement of its common stock.
Interest expense on the note payable to related parties amounted to
$63,507 and $82,574 in fiscal 1997 and fiscal 1996, respectively.
Purchase of Note Payable to Related Parties and Exchange of Note for
Common Stock
--------------------------------------------------------------------
On May 15, 1996, three officers of the Company purchased $93,600 of
the note payable to related parties from the related parties in exchange for
notes payable to related parties from the officers. The officers exchanged
the notes for 390,000 shares of Common Stock at a price of $0.24 per share.
-27-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
On July 31, 1996, the Chief Financial Officer of the Company
purchased $32,000 of the note payable to related parties from the related
parties in exchange for a note payable to the related parties from the
officer. The Chief Financial Officer exchanged the note to exercise a warrant
to purchase 160,000 shares of Common Stock of the Company at a price of
$0.20 per share.
Lease Payments to Related Party
-------------------------------
The son of the Chief Financial Officer leased equipment to the
Company under three capital leases, which expired as of September
30, 1996.
(3) Property and Equipment
- ----------------------------
A summary of property and equipment at September 30, 1997 and 1996
follows:
1997 1996
---------- ----------
Furniture and fixtures $ 52,832 $ 35,593
Office equipment 157,568 121,120
Production equipment 664,349 557,643
Vehicles 10,058 10,058
------- -------
884,807 724,414
Less accumulated depreciation (466,654) (373,709)
---------- ----------
$ 418,153 $ 350,705
========= =========
(4) Bank Line of Credit
- -----------------------
On January 3, 1997 the Company obtained a $500,000 revolving loan facility
with Norwest Business Credit. Under the terms of this facility, the Company
and SBS pledged all of their assets to collateralize the financing. As a
condition of the financing , the related party subordinated its debt to
Norwest. The facility bears interest at the rate of 5% over Norwest's prime
-28-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
lending rate with a minimum interest charge of $7,500 per quarter. Advances
under the facility are limited to 80% of the eligible accounts receivable.
As of September 30, 1997 approximately $125,000 was available under the
facility. The facility expires on December 31, 1998.
Interest expense attributable to this facility amounted to $25,036 in fiscal
1997.
(5) Capital Lease Obligations
- -------------------------------
The Company leases various equipment under capital leases. Following
is a summary of minimum lease payments required under capital leases as of
September 30, 1997:
1998 $140,105
1999 103,318
2000 27,270
2001 6,249
2002 1,330
--------
Total minimum commitments 278,272
Less portion representing interest (40,627)
---------
Present value of net minimum commitments 237,645
Less current portion (113,154)
---------
Non-current portion $124,491
Assets held under capital leases at September 30, 1997 and 1996 are
summarized as follows:
1997 1996
--------- ---------
Assets at cost . . . . . . . . . . . . . . . . . . $ 346,828 $ 254,864
Less accumulated depreciation . . . . . . (73,783) (21,809)
---------- ----------
$ 273,045 $ 233,055
========= =========
Amortization of capital leases is included in depreciation expense.
-29-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Interest expense attributable to capital leases of the Company is
included in interest expense in the accompanying consolidated financial
statements and amounted to $41,931 and $12,151 in fiscal 1997 and fiscal
1996, respectively.
(6) Commitments
- -----------------
Office Lease
------------
The Company occupies office space under a lease that expires in
February 1999 and requires monthly payments of $6,375. Following is a
summary of future rental commitments under this lease:
1998 $76,500
1999 $31,875
Rent expense amounted to $63,649 in fiscal 1997 and $37,836 in
fiscal 1996.
Incentive Plan
--------------
During fiscal 1996, the Board of Directors offered an incentive
plan, which is made available to all of the Company's full time employees as
an incentive to achieve improved profitability. Pursuant to the terms of
the Plan, the Company will contribute an amount equal to six percent of the
Company's net profit on a calendar quarterly basis beginning January 1, 1996.
Full time employees of the Company each receive a number of shares in the Plan
based upon their respective categories of employee classification. As the
Plan is on a calendar year basis and the financial statements are for the
fiscal year ended September 30, 1996 net income for the quarter ended
December 31, 1995 of $105,744 attributable to seasonal sales of holiday
greeting cards, was not included in the incentive plan in 1996. During the
following three quarters the Company had net losses totaling $68,946.
Therefore, no shares were contributed to the 1996 incentive plan. During
the first calendar quarter of 1997 $8,175 was contributed to the Plan based
on the Company's profitability for that quarter. No additional contributions
have been made to the Plan as the Company was not profitable during the two
quarters from April 1, 1997 through September 30, 1997.
-30-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Profit Sharing Plan
-------------------
In August 1992, the Company adopted a 401(k) Profit Sharing Plan,
which covers all employees with three months service and who are at least 21
years old. A participant may defer a maximum of 15% of his compensation to
the statutory limit, and the Company matches the first 5% of the amount
deferred. As of January 1, 1997 this match was increased to the first 10% of
the amount deferred. In fiscal 1997 and fiscal 1996, such matching
contributions amounted to $3,331 and $1,435, respectively.
Common Stock
- ------------
Stock Options
-------------
In 1997 the Company adopted the 1997 Stock Option Plan. Under the
terms of the plan the Company may grant options to its employees to purchase
up to 250,000 shares of Common Stock. Options granted under the Plan may be
either Incentive Stock Options or Non-Qualified Stock Options. In accordance
with the terms of the Plan, the exercise price of each incentive stock
option will be determined by the Stock Option Committee (the Committee),
except that the price shall not be less than the fair market value of the
Company's Common Stock on the date of grant. For options issued as
non-qualified stock options, the exercise price will be determined in good
faith by the Committee in its discretion except that if there is a public
market for the common shares, the exercise price shall be the mean of the
bid and ask price on the date of grant. The maximum term of options granted
is 10 years and vesting is generally over a four-year period.
-31-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
A summary of the status of the Company's stock option plan as
of September 30, 1997, and changes during the year then ended are presented
below:
1997
---- Weighted-Average
Shares Exercise Price
------ ----------------
Outstanding at beginning or year - -
Granted 209,500 $6.15
Exercised - -
Forfeited - -
-------
Outstanding at end of year 209,500 $6.15
=======
Options exercisable at year-end 84,500 $4.00
Weighted-average fair value of
options granted during the year $1.02
The following table summarizes information about stock
options outstanding at September 30, 1997:
Options Outstanding Options Exercisable
Range of Weighted-Average Weighted- Weighted-
Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Exercise Exercisable Exercise
Life Price Price
- ------- ----------- ----------- -------- ----------- ---------
$4-6 153,250 9.9 years 4 84,500 $4
7-9 18,750 10 8 - -
10-12 18,750 10 12 - -
13-16 18,750 10 16 - -
------- ------
4-16 209,500 10 6.15 84,500 4
======= ======
-32-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
At September 30, 1997 the Company had one fixed option plan which is
described above. The Company did not have a stock option plan during 1996.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plan. As all employee stock option grants were at or
above fair market value, no compensation cost has been recognized for the
plan. Had compensation cost for the Company's fixed option plan been
determined on the fair value at the grant dates for awards under the plan
consistent with the method of FASB Statement 123, the Company's current year
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
1997
------
Net Loss:
As reported $354,879
Pro forma (1) 441,375
Net loss per share:
As reported $0.23
Pro forma 0.29
-33-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997: dividend yield of 0% for all grants;
expected volatility of .001, risk-free interest rates of 6% for all grants;
and expected life of 5 years.
During 1997 the Company issued options to purchase 18,750 shares at $8
per share; 18,750 shares at $12 per share and 18,750 shares at $16 per share,
all of which were priced above the fair market value of the Company's stock
at the date of grant.
Other
-----
On May 15, 1996, the Company entered into agreements with three officers
of the Company tosell them shares of its Common Stock at $0.24 per share.
Certain restrictions have been placed on the transfer of these shares and
lapse with respect to one-third of the shares annually on August 1 beginning
on August 1, 1996. The restrictions lapse if the officer is an employee on
August 1, and has not had a break in service. Restrictions also lapse upon
one of the following events: sale of all or substantially all of the assets
of the Company, the officer's death, permanent total disability or retirement
or, the Board determines that a significant corporate event has occurred
(merger consolidation, etc.). If an officer terminates employment with the
Company, all shares still subject to the restrictions shall be sold by the
officer to the Company at the original purchase price.
The Vice-President, Marketing resigned as of August 23, 1996, and
the Company repurchased his shares.
On July 31, 1996, the Chief Financial Officer exercised warrants
to purchase 160,000 shares of Common Stock at a purchase price of $0.20 per
share. The warrants were assigned to the Chief Financial Officer from a
related party in 1993.
In December of 1996 the Company commenced a private placement of
its Common Stock. Through this offering, which terminated on June 30, 1997,
the Company has received $275,000: $125,000 in cash and an additional
$150,000 from a related party in the form of a reduction on the note payable
to the related party.
-34-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
On July 24, 1997 the Company commenced a private placement. Under
the terms of the offering, the Company is seeking to raise a maximum of
$725,000 (181,250 shares at $4.00 per share). There is no minimum for this
private placement. The Company has received $57,000 as of September 30,
1997.
(8) Major Customers
- ---------------------
The following customers each accounted for more than 10% of sales in
fiscal 1997 and fiscal 1996:
% of Sales
--------------------
Customer 1997 1996
---- ----
A 39.6 -
B 19.3 40.0
C 6.5 12.4
D 4.1 10.8
.(9) Income Taxes
- -------------------
The tax effect of each type of temporary difference and carryforward
that give rise to a significant portion of deferred tax assets at September
30, 1997 and 1996, is as follows:
1997 1996
-------- -------
Deferred Tax Assets
Net operating loss carryforward $ 583,081 $ 486,982
Allowance for doubtful accounts 1,700 1,700
Depreciation 3,538 1,091
Accrued interest - note payable to related party 86,247 68,160
-------- --------
Total Gross Deferred Tax Assets 674,566 557,933
Less valuation allowance (674,566) (557,933)
--------- ---------
Net Deferred Tax Assets $ - $ -
========= =========
-35-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
At September 30, 1997 the Company has net operating loss carryforwards
which expire as follows:
Expiration Amount
---------- ----------
1999 $ 130,300
2000 207,700
2001 87,100
2002 11,400
2003 357,700
2004 431,400
2005 206,700
2012 282,700
-----------
$1,715,000
===========
A portion of the loss carryforwards, aggregating approximately
$437,000, are subject to separate return limitations.
Income tax expense is different from amounts computed by applying the
statutory Federal income tax rate to earnings (loss) before income taxes
for the following reasons:
1997 1996
-------- --------
Tax expense (benefit) at 34% of earnings (loss)
before income taxes $(120,658) $ 12,511
Change in valuation allowance for net
deferred tax assets 116,633 (14,262)
Other 4,025 1,751
--------- ---------
Income tax expense (benefit) $ - $ -
========= =========
-36-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(10) Subsequent Event
- ---------------------
On December 10, 1997 the Company closed on a loan of $1,500,000 with Sirrom
Investments, Inc. (Sirrom). The proceeds of the loan will be utilized for
working capital, to pay a portion of the existing indebtedness to certain
shareholders, and to pay off the senior secured bank credit facility. The
loan provides for a stated interest rate of 13.75% per annum, payable
monthly. Principal is due on December 10, 2002.
The loan, which is secured by all of the assets of the Company, is
subordinate only to the existing $500,000 bank line of credit. This bank
line of credit remains available to the Company under the terms as described
in Note 4.
In connection with the loan, the Company issued warrants to Sirrom to
purchase up to 13% of the Common Stock of the Company at a purchase price of
$.01 per share. There are certain provisions of the loan agreement
which could increase the amount of warrants to be issued. The Company is
required to issue warrants up to an additional 5% of the Common Stock of the
Company if the Company does not meet certain income performance measures
for the year ending September 30, 1998, and up to an additional 3.75% if the
loan is not paid by December 10, 2002.
The Company also paid certain fees in obtaining the loan, including a
$37,500 fee to Sirrom to process the loan, a $105,000 fee to an investment
banking firm that assisted in obtaining the loan, and fees to attorneys
of approximately $35,000.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- -----------------------------------------------------------------------
The Company engaged the firm of William G. Lajoie, P.C., to audit its
consolidated financial statements for the years ended September 30, 1993,
1994, and 1995. There were no reportable disagreements with that firm, and
its reports for 1993, 1994, and 1995 were unqualified.
In 1996, the Company engaged the firm of KPMG Peat Marwick LLP to audit
its consolidated financial statements for the years ended September 30, 1996
and 1997.
-37-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
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, 1997, are
as follows:
Name Age Position
- ----------------- --- ----------------------------------
Ray E. Dillon III 44 Director and Chairman of the Board
Richard S. Simms 47 Chief Financial Officer, Director, Treasurer
Donald V. Warriner 47 Chief Executive Officer, President and
Director
J. Scott Fowler 33 Chief Operating Officer and Secretary
Jeffrey W. Clayton 42 Vice President, Sales
David T. Clements 57 Vice President, Marketing & Business
Development
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 seven meetings during the past fiscal year,
and all of the members then 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.
-38-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
The following sets forth biographical information as to the business
experience of each officer and director of the Company.
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 devotes only such time to the
business of the Company as is necessary in his position.
Richard S. 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
devotes part of his time to the business of the Company and its subsidiaries.
Donald V. Warriner is President and CEO of the Company as of August 1995.
Prior to joining the Company, Mr. Warriner was employed by Cherry Creek
Mortgage Company. Prior to working for Cherry Creek, Mr. Warriner
was President of Bainbridge International, a company that was involved in
acquisitions and buy outs of small to medium-sized firms. Mr. Warriner
devotes all of his time to the business of the Company. Mr. Warriner holds
a bachelors degree in accounting from Metropolitan State College and an MBA
from the University of Colorado.
J. Scott Fowler is the Chief Operating Officer of the Company. From 1994
to 1995 he was a consultant for Raymond James Consulting. From 1993 to 1994
he was a consultant for INFOVISA, Inc. From 1987 to 1993 he was a Senior
Management Consultant with Electronic Data Systems. Mr. Fowler holds a
Bachelor's degree in Industrial Engineering from the University of Texas and
an MBA from the University of Colorado.
Jeffrey W. Clayton is the Vice President of Sales for the Company. From
1996 to 1997 he was Director of Financial Services for dbIntellect/EDS.
From 1995 to 1996 he was Vice President of Sales for Broadway & Seymour. He
was Vice President of Marketing and Sales for INFOVISA, Inc. from 1993 to
1995. From 1983 to 1993 he held positions with various divisions of EDS.
-39-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
David T. Clements is the Vice President of Marketing & Business Development
for the Company. From 1992 to 1997 he was the Managing Director of Stratecom
Management Partners. From 1981 to 1992 he was with Teradata Corporation in a
variety of positions including Senior Director of Communications.
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 $100,000 during the
fiscal years ended September 30, 1997 and 1996:
Summary Compensation
Annual Compensation Long-Term Compensation
Other
Annual Restricted All Other
Name and Compen- Stock Options/ LTIP Compen-
Principle Salary Bonus sation Awarded SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- -------- ---- ------ ------ ------ ------- ------ ------- -------
Donald V.
Warriner,
CEO 1996 67,900 22,500
Donald V.
Warriner,
CEO 1997 91,990 23,782
Richard S.
Simms, CFO 1996 48,000
Richard S.
Simms CFO 1997 30,000
-39-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Summary Compensation
Annual Compensation Long-Term Compensation
Other
Annual Restricted All Other
Name and Compen- Stock Options/ LTIP Compen-
Principle Salary Bonus sation Awarded SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- -------- ---- ------ ------ ------ ------- ------ ------- -------
J. Scott
Fowler,
COO 1996 49,900 7,800
J. Scott
Fowler,
COO 1997 73,612 11,387
Jeffrey W.
Clayton,
VP 1997 4,273 23,000
David T.
Clements,
VP 1997 47,600 50,000
________________________
-40-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
The following table shows certain information with respect to stock
options granted to the Company's executive officers during the fiscal year
ended 1997:
Option/SAR Grants in Last Fiscal Year
Individual Grants
-----------------------------------------------------------------
% of Total
Number of Securities Options/SARs Exercise or
Underlying Options / Granted to Emps. Base Price Expiration
SARs Granted (#) in Fiscal Year ($/Sh) Date
- ------------------------------------------------------------------------------
Donald V.
Warriner 0 N/A N/A N/A
Richard S.
Simms 0 N/A N/A N/A
J. Scott
Fowler 0 N/A N/A N/A
Jeffrey W.
Clayton 23,000 100 $4.00 2007
David T.
Clements 50,000 100 $4.00 2007
-41-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
The following table sets forth certain information with respect to
option exercises during the fiscal year ended September 30, 1997 by the
executive officers of the Company and the value of each such officer's
unexercised options at September 30, 1997:
Aggregated Options/SAR Exercise in Last Fiscal Year
and Fiscal Year - End Options/SAR Values
-------------------------------------------------------------
Number of Securities
Shares Underlying Value of Unexercised
Acquired Value Unexercised In-the-Money
on Exercise Realized Options/SARs at Option/SARs at Fiscal
(#) ($) Fiscal Year-End (#) Year-End ($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------
Donald V.
Warriner None None 0 0 0 0
Richard S.
Simms None None 0 0 0 0
J. Scott
Fowler None None 0 0 0 0
Jeffrey W.
Clayton None None 0 23,000 0 0
David T.
Clements None None 0 50,000 0 0
-42-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth information as of September 30, 1997,
with respect to the beneficial ownership of the Company's $0.001 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:
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
------------------- ---------- --------
Richard S. Simms 449,178 (1) 28.39
20 Dutch Creek Drive
Littleton, CO 80123
Donald V. Warriner 375,000 23.70
4 Glenview Drive
Littleton, CO 80123
J. Scott Fowler 150,000 9.48
6485 South Parfet Street
Littleton, CO 80127
Ray E. Dillon III 240,049 (2) 15.17
1 Compound Drive
Hutchinson, KS 67502
All Directors and executive 1,214,227 76.74
officers as a group
- ---------------------------------------
(1) Includes shares owned by the Simms Family Partnership, controlled by
Mr. Simms.
(2) Includes 76,267 shares owned by other members of the Dillon family.
-43-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
No director or 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 Ray E. Dillon,
Jr. and Ray E. Dillon, III (father and son), (the "Dillon Note"), in January,
1996. Ray E. Dillon III is now Chairman of the Board of Directors and
owns and controls 240,049 shares of the Company's Common Stock. The
principal amount of the note was $677,000, with interest at 10%, and was
originally due on or before October 1, 1996. Additionally, the Company owed
$192,072 in accrued interest from the prior indebtedness. The Dillon 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. However, the Dillon
Note is subordinate to the positions of Norwest Business Credit and Sirrom.
The Dillons entered into agreements with Richard S. Simms in 1990 and
1993 whereby, in consideration for him becoming and continuing as President,
they sold to him certain shares of stock, agreed to pay him 10% of any
principal paid to them (i.e., the $677,000 referred to above), agreed to
pay him 50% of interest payments collected by them, and assigned warrants
to purchase 160,000 shares of Common Stock to him. The warrants were issued
to the Dillons in 1992 as a result of a previous refinancing of the Dillon
Note and were transferred to Mr. Simms in 1993.
Interest expense on the Dillon Note amounted to $63,507 in fiscal
1997 and $82,574 in fiscal 1996.
-44-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
On May 15, 1996, three officers of the Company purchased $93,600 of the
note payable to related parties from the related parties in exchange for
notes payable to the related parties from the officers. The officers
exchanged the notes for 390,000 shares of common stock at a price of $0.24
per share.
On July 31, 1996, the Chief Financial Officer of the Company
purchased $32,000 of the note payable to related parties from the related
parties in exchange for a note payable to the related parties from the
officer. The Chief Financial Officer exchanged the note to exercise a
warrant to purchase 160,000 shares of Common Stock of the Company at a price
of $0.20 per share.
On January 3, 1997 the Company was desirous of obtaining a line of
credit from a lending institution. The Company anticipated that this lender
would require subordination of the note payable to related parties. As
consideration for entering into this subordination agreement the related
party required that this indebtedness be refinanced to bear interest at the
rate of 10% per annum compounded daily. At the same time the related party
exchanged $150,000 of the debt for 37,500 shares of Common Stock at a price
of $4.00 per share.
Ray E. Dillon III and Richard S. Simms have loaned $157,000 to SBS as
of September 30, 1997 to meet certain operating expenses. These loans bear
interest at a rate of 10%.
-45-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
Item 13. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit
Number Description Location
- ------- ------------------------ ---------------------------------------
3.1 Articles of Incorporation Incorporated by reference to the
Company's Post Effective Amendment No.
7 to the Company's Registration
Statement on Form S-18 (SEC File No.
2-95050-D)
3.2 Bylaws Incorporated by reference to the
Company's Post Effective Amendment
No. 7 to the Company's Registration
Statement on Form S-18 (SEC File No.
2-95050-D)
10.1 Revolving Note Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.2 Credit and Security Incorporated by reference to Exhibit
Agreement 10.2 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.3 Collateral Account Incorporated by reference to Exhibit
Agreement 10.3 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.4 Agreement as to Lockbox ServiceIncorporated by reference to
Exhibit 10.4 to the Company's Quarterly
Report on Form 10-QSB for the quarter
ended December 31, 1996.
-46-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
10.5 Landlord's Disclaimer and Incorporated by reference to Exhibit
Consent 10.5 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.6 Support Agreement - Incorporated by reference to Exhibit
Richard S. Simms 10.6 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.7 Support Agreement- Incorporated by reference to Exhibit
Donald V. Warriner 10.7 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.8 Guaranty by Corporation Incorporated by reference to Exhibit
10.8 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.9 Security Agreement for Incorporated by reference to Exhibit
Guaranty 10.9 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.10 Security Agreement in Incorporated by reference to Exhibit
Favor of Norwest Bank NA 10.10 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.11 Subordination Agreement Incorporated by reference to Exhibit
10.11 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
10.12 Assignment Incorporated by reference to Exhibit
10.12 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
December 31, 1996.
-47-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
10.13 Stock Option Plan Incorporated by reference to Exhibit
10.5 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
June 30, 1997.
10.14 Penske Autotrac Contract Filed herewith electronically
(Pricing information
deleted)
10.15 Penske Newsletter Contract Filed herewith electronically
(Pricing information
deleted)
10.16 Penske PTL Mover Contract Filed herewith electronically
(Pricing information
deleted)
10.17 Penske Target Mail Contract Filed herewith electronically
(Pricing information
deleted)
10.18 Sirrom Investments, Inc. Filed herewith electronically
loan documents
10.19 Sun Company, Inc. Contract Filed herewith electronically
(Pricing information
deleted)
10.20 Sun Company, Inc. Contract Filed herewith electronically
including Supplement #4
(Pricing information deleted)
21.1 Subsidiaries of the Filed herewith electronically
registrant
27.1 Financial Data Schedule Filed herewith electronically
-48-
DATA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report.
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.
(Registrant) DATA NATIONAL CORPORATION
BY(Signature) /s/Richard S. Simms
(Date) January 12, 1998
(Name and Title Richard S. Simms,
Chief Financial Officer,
Treasurer and Director
(Principal Accounting Officer)
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.
BY(Signature) /s/Richard S. Simms
(Date) January 12,1998
(Name and Title) Richard S. Simms,
Chief Financial Officer,
Director and Treasurer
BY(Signature) /s/
(Date) January 12,1998
(Name and Title) Ray E. Dillon III, Chairman of the
Board and Director
BY(Signature) /s/
(Date) January 12,1998
(Name and Title) Donald V. Warriner, President,
Chief Executive Officer and
Director
-49-