PART I. - FINANCIAL INFORMATION Item 1. Financial statements. DATA SYSTEMS NETWORK CORPORATION STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) Three months ended March 31 __________________ 1996 1995 _________ __________ Net sales $4,246,349 $6,605,314 Service revenue 767,515 470,686 ---------- ---------- Total revenues 5,013,864 7,076,000 Cost of sales 3,728,824 5,739,248 Cost of service revenues 233,800 317,299 ---------- --------- Total cost of revenues 3,962,624 6,057,547 Gross Profit 1,051,240 1,018,453 Selling expenses 473,148 484,124 General and administrative expenses 404,357 256,029 ---------- --------- Total operating expenses 877,505 740,152 Income from operations 173,735 279,300 Other income(expenses) Interest expense (92,378) (91,046) Interest income 85,200 43,594 ---------- --------- Net income before minority interest in subsidiary 166,557 231,848 Less minority interest in subsidiary (53,027) ---------- --------- Net income 113,530 231,848 Three Months Ended March 31, 1996 1995 ------------------------ ----------------------- Primary Fully Diluted Primary Fully Diluted Earnings per commmon shares: $0.04 $0.04 $0.09 $0.08 Weighted number of shares outstanding: 2,560,281 2,860,281 2,560,000 2,860,000 <FN> See Accompanying Notes to Financial Statements DATA SYSTEMS NETWORK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 1996 December 31, 1995 ______________ ______________ (unaudited) ASSETS Current Assets Cash and cash equivalents $3,249,788 $3,171,544 Accounts receivable (net of allowance of $61,088 and $67,086 at March 31, 1996 and December 31, 1995, respectively)4,788,864 5,249,771 Notes Receivable 412,409 692,387 Inventories,net 1,008,154 992,922 Other current assets 196,813 294,296 --------------- -------------- Total Current Assets 9,656,028 10,400,860 Service Parts, net 1,114,744 1,169,781 Property and Equipment, net 593,877 297,029 Other Assets 74,247 70,743 Goodwill, net (note 3) 999,078 ---------------- -------------- TOTAL ASSETS $12,437,974 $11,938,413 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Bank line of credit(Note 2) $3,910,912 $3,956,000 Current portion of long-term debt 130,322 213,039 Accounts payable(Note 4) 3,437,055 3,449,520 Accrued liabilities 538,495 514,693 Deferred maintenance revenues 396,995 228,060 ---------- ---------- Total Current Liabilities 8,413,779 $8,361,312 Long Term Debt,less current portion 380,537 100,000 Minority Interest In Subsidiary 53,027 Stockholders' Equity Preferred stock Common stock par value $0.01 per share Authorized 10,000,000 shares Issued and outstanding - 2,715,000 27,150 27,150 Additional paid-in capital 6,385,047 6,385,047 Accumulated deficit (2,821,566) (2,935,096) ----------- ----------- Total Stockholders' Equity $3,590,631 $3,477,101 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,437,974 $11,938,413 <FN> See Accompanying Notes to Financial Statements DATA SYSTEMS NETWORK CORPORATION STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 Cash Flow From Operating Activities: Income From Operations $113,530 $231,848 _______ _______ Adjustments To Reconcile Net Income to Net Cash Provided by Changes in assets and liabilities, net of Effects from purchase of majority interest In subsidiary Depreciation and amortization 	 90,351 85,694 Provision for doubtful receivables 	 21,121 2,925 Provision for inventory obsolesence 	 8,331 4,313 Asset contributions received (80,000) Changes in assets & liabilities Accounts and notes receivable 	 440,067 (874,105) Investment in affiliate 		 279,978 Inventories 		 67,585 (857,682) Other current assets 90,423 (34,917) Service parts (5,019) 14,150 Other assets (2,710) (11,312) Accounts payable (302,895) 1,774,884 Accrued liabilities (1,004) (98,890) Deferred maintenance revenues 18,368 13,798 _______ _______ Net Cash generated by operating activities $818,127 $170,716 _______ _______ Cash Flow From Investing Activities: Acquisition of property, plant & equipment $(32,736) Payment for purchase of common stock Of subsidiary, net of cash acquired $(7,000) ----------- -------- Net Cash used in Investing Activities $(7,000) $(32,736) Cash Flow From Financing Activities: Net repayments under bank line of credit $(45,088) $(9,407) Notes payable (605,000) Payment of principal on long- term debt (82,717) (39,447) _______ _______ Net Cash used by Financing Activities $(732,883) $(48,854) _______ _______ Net increase in cash 78,244 89,116 Cash at Beginning of Year $3,171,544 $3,196,038 _______ _______ Cash at End of Period $3,249,788 $3,285,154 Supplemental Schedule of Noncash Investing and Financing Activities The Company purchased common stock of UNS for $7,000. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $204,745 Goodwill $999,078 Cash paid for Capital Stock ($7,000) ----------------- Liabilities assumed $1,196,823 <FN> See Accompanying Notes to Financial Statements DATA SYSTEMS NETWORK CORPORATION NOTES TO FINANCIAL STATEMENTS March 31, 1996 Note 1. Basis of Presentation The accompanying unaudited interim financial statements of the Company, have been prepared in accordance with generally accepted accounting principles for interim financial information and should be read in conjunction with the Company's audited financial statements and Notes contained in the Company's Form 10-K for the year ended December 31, 1995. The condensed consolidated financial statements include all adjustments, consisting of normal reocurring adjustments, necessary for a fair presentation of results of of operations for the periods presented. The results of such interim periods are not necessarily indicative of the results of operations for the full year. The consolidated financial statements include the financial statements of Data Systems Network Corporation and the majority-owned subsidiary Unified Network Services. All significant intercompany balances and transactions have been eliminated in consolidation. Note 2. Bank line The Company has a bank line of credit of $7.5 million bearing interest at .75% over the bank's prime rate (effective rate of 9% at March 31, 1996). The current agreement extends until February 1, 1997 and can be terminated at any time by the Company or the bank. Borrowings under the line of credit are due on demand. Borrowing limits are determined based on a collateral formula which includes 85% of qualified trade receivables less than 90 days old and 25% of eligible inventory and spare parts. The line is collateralized by substantially all of the Company's assets. The line of credit agreement contains certain covenants requiring the Company's receivables to be genuine and free of all other encumbrances and requiring the Company's inventory financed under the term agreement to be kept at designated locations and free from all other encumbrances. Subsequent to July 28, 1995, the inventory covenants are restricted to apply solely to the inventory financed through this agreement, exclusive of any and all inventories financed under the IBM Credit Corporation Agreement (see Note 4). Note 3. Acquisitions On February 22, 1996, the Company purchaseed 70% (or 7,000 shares) of Unified Network Services, Inc. for $7,000. As of March 31, 1996, the Company's balance sheet and results of operations are consolidated, with appropriate adjustments to reflect intercompany transactions and minority interest. The acquisition of UNS was accounted for as a purchase. Accordingly, the purchase price was allocated to the net assets acquired based upon their estimated fair market value. The excess of the purchase price over the estimated fair market value of the net assets acquired amounted to approximately $999,078, which is being accounted for as goodwill and is being amnortized over 20 years using a straight-line method. This allocation was based on preliminary estimates and may be revised at a later date. Note 4. Credit Line On July 28, 1995, the Company entered into a secured finance agreement with IBM Credit Corporation. For the period ending March 31, 1996, the current agreement extends a maximum of $1,250,000 in secured funds to be used exclusively for the acquisition of inventory for resale, limited to those products manufactured by Apple, Compaq, Hewlett Packard, IBM and Lexmark. Use of this credit line is at the Company's option. To secure payment of all current debt under this agreement, IBM Credit Corporation was granted a first security interest in the Company's inventory equal to the amount of the outstanding debt. This agreement allows for interest-free financing if paid within thirty days of invoicing. The agreement also provides for a variable discount option, ranging from .5% to 1.0% off of the invoice ,if paid within fifteen days. This agreement can be terminated at any time by the Company or the lender. The terms and conditions of this financing agreement can be changed at the discretion of IBM Credit Corporation. [/FN] Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATA SYSTEMS NETWORK CORPORATION August 14, 1996 Date Julie A. Vitale-Johnston Controller and Principal Accounting Officer May 14, 1996 Michael W. Grieves Date Michael W. Grieves President and Chief Executive Officer