UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the year ended December 31, 1996
Commission File Number: 1-13424
DATA SYSTEMS NETWORK CORPORATION
(Exact name of Registrant as specified in its charter)
MICHIGAN 38-2649874
(State or other jurisdiction of (I.R.S.
Employer incorporation or organization)
I.D. No.)
34705 West Twelve Mile Road, Suite 300
Farmington Hills, Michigan 48331
(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code:
(810)489-7117
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, $01. par value Pacific Stock Exchange and
Nasdaq Stock Market's
SmallCap Market
Warrants Delisted
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K 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-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant
held by non-affiliates (3,246,831 shares) on March 17, 1997 was
$28,815,625. For purposes of this computation only, all
executive officers, directors and beneficial owners of more than
5% of the outstanding shares of common stock are assumed to be
affiliates.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES X NO
Indicate the number of shares outstanding of each of the
Registrant's classes of Common Stock as of the latest practicable
date: 4,511,206 shares of Common Stock outstanding as of March
17, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the
1997 Annual Meeting of Shareholders are incorporated by reference
into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
- -------
Data Systems Network Corporation (the "Company"),
incorporated in Michigan in 1986, provides computer network
integration and data management services in the distributed
computing marketplace. The Company's broad array of services
includes designing, installing, and managing networks of personal
computers, workstations and mainframes linked with communications
hardware and software and peripheral equipment, selling network
components, training users and administrators of networks and
providing technical, expansion and maintenance services.
Marketing efforts are directed at Fortune 1000 and middle market
corporations, state and local governments, and institutional
users such as hospitals and universities.
In November 1994, the Company completed its initial
offering of 1,270,000 shares of Common Stock and 1,270,000
Redeemable Common Stock Purchase Warrants (the "Warrants") to the
public. Upon completion of the offering, the Common Stock and the
Warrants became qualified for trading on the Nasdaq Stock
Market's SmallCap Market and the Pacific Stock Exchange. In
February 1997, the Company called all of its then outstanding
Warrants for redemption as of March 10, 1997 pursuant to the
Warrant Agreement, dated October 28, 1994, setting forth the
terms of the Warrants. Approximately 99% of the Warrants were
exercised on or prior to the date of redemption at a price of
$6.25 per Warrant, resulting in net proceeds of approximately
$7,400,000.
In February 1996, the Company acquired 70% of the common
stock of Unified Network Services, Inc. ("UNS"), a start-up
network management operation based in Raleigh, North Carolina for
$7,000 in cash. The Company also acquired the Network Systems
Group ("NSG") of SofTech, Inc. in September 1996 for 540,000
shares of the Company's Common Stock and $890,000 in cash. From
September 1996 through the end of the year, the Company opened
over 10 new locations in the eastern, mid-Atlantic, and southern
areas of the United States.
BUSINESS STRATEGY
- -----------------
The Company's primary objective is to be the principal
"network integration and management company" for business,
governmental, and institutional customers throughout the United
States. To achieve its objective, the Company intends to expand
through internal growth and to explore opportunities to acquire
other businesses serving its target markets.
During 1996, the Company made major changes to its
operations, primarily in the last quarter of the year, in order
to reposition the Company in terms of mix of business, type of
customer, and geographical area served. In terms of mix of
business, the Company is focusing on a higher level of service-to-
product revenue mix, emphasizing those high end services, such as
network management, where the Company believes it has a
competitive advantage. The type of customer has changed through
the Company's marketing focus was changed to include not only
commercial accounts, but also governmental accounts. The Company
expanded its geographical coverage to include significant sales
and service coverage of the eastern United States.
In addition, the Company has made a substantial investment
in a remote network management facility in Raleigh, North
Carolina. The center is nearing completion and has been partially
operational during the first quarter 1997. The Company also has,
as a result the NSG acquisition, a telephone support center which
it intends to integrate into its remote network management
offering.
PRODUCTS AND SERVICES
- ---------------------
The Company's principal business is the design, sale and
service of local area networks ("LANs") and wide area networks
("WANs"). The Company generates revenues by providing consulting
and network installation services, selling add-on hardware
components to existing clients and providing after-installation
service and support, training services and network management
services. The Company is an authorized dealer, reseller or
integrator for the products of many major vendors, including, but
not limited to: IBM, Compaq, Sun Microsystems, Dell, Bay
Networks, Hewlett-Packard, Novell, Microsoft, Cisco, Meridian
Data, 3COM, Lotus, Intel, Digital Equipment Corporation and
Oracle. The Company is developing applications for remote
network management and sells private label computer systems,
primarily to state governments. In addition, the Company provides
application development services in database development, web
site and Internet development, and imaging systems.
Resellers who meet specified qualifications receive
customer referrals and recommendations and advanced technical
assistance and support from certain manufacturers, giving the
qualifying resellers a competitive advantage over other resellers
in the market. These qualifications vary from manufacturer to
manufacturer and typically include some or all of the following
components: specific training for technical personnel, specific
training for sales personnel, possession of certain advanced
equipment, ongoing training requirements, and minimum purchase
targets. The process of obtaining and maintaining these
manufacturer authorizations is both time consuming and expensive,
with the cost of obtaining and maintaining a single authorization
ranging from $5,000 to approximately $250,000. These costs
include, but are not limited to, acquisition of hardware,
software, facilities and spare parts, training fees, personnel
and travel expenses and fees paid to the manufacturer for
certification. Some authorizations for which the Company has
qualified are: Novell Platinum Reseller, Microsoft Solutions
Provider, and Banyan Premier Provider.
Equipment is generally sold by the Company only in
conjunction with the Company's higher margin network engineering
services. These services include design, consulting,
installation and network administration for both LANs and WANs.
The Company provides turnkey implementation and support services
and, for some customers, on-site support personnel who work in
conjunction with the customer's personnel on a continuous basis.
The Company also provides on-going technical and
maintenance support through a variety of service programs
tailored to fit each specific customer's service needs and
budget. These programs include a two-hour response service for
critical network components and a "guaranteed spares" program for
self-maintaining clients. Warranties provided by manufacturers
are generally passed through to the purchaser by the Company.
The Company offers no warranty separate from manufacturers'
warranties.
MARKETING AND CUSTOMERS
- -----------------------
The Company markets its products and services through its
internal sales force. The Company has sales service personnel in
the following states: Alabama , Florida, Georgia, Illinois,
Louisiana, Maryland, Massachusetts, Michigan, Mississippi, New
Jersey, New York, North Carolina, Ohio, Pennsylvania, and South
Carolina. The Company adds and deletes locations on the basis of
business opportunities. The Company is able to perform work
outside of its locations based upon the locations of its
customers' projects. The Company, through its UNS subsidiary, has
recently taken on international assignments and may continue to
do so. International operations have been immaterial in each of
the past three years. The Company has no retail sales outlets.
Marketing efforts are directed at Fortune 1000 and middle
market corporations, state and local governments, and
institutional users such as hospitals and universities. Although
the Company intends to expand its geographical coverage, current
marketing efforts are generally focused on customers located in
the states in which the Company has offices.
The State of Michigan accounted for 23.6 % of revenues in
1996 as a result of a contract assigned in connection with the
NSG acquisition in September 1996. Revenues in previous years
from the State of Michigan were minimal. Purchases by agencies of
the State of Michigan were made pursuant to a blanket agreement
expiring in August 1997. There are no assurances that this
contract can be extended or that, if rebid, the Company will be
awarded an additional contract under the same terms and
conditions. The loss of this contract would have a material
adverse affect on the Midwest region revenues, however, the
Company believes that this adverse affect would be offset by the
new customer base developed in the Eastern region.
VENDORS
- -------
The Company purchases the microcomputers and related
products it sells directly from certain vendors and indirectly
through distributors, such as Inacom Corporation, Intelligent
Electronics, Inc. and Ingram Corporation. In general, the
Company must be authorized by a vendor in order to sell certain
of its products, whether the products are purchased from
distributors or directly from the vendor. The Company is an
authorized reseller for microcomputer, workstations, and related
products of over 30 manufacturers. Sales by the Company of
products manufactured by Compaq, Dell, Hewlett-Packard and IBM
accounted for between 45% to 55% of revenues during each of the
last three fiscal years. Typically, vendor agreements provide
that the Company has been appointed, on a non-exclusive basis, as
an authorized reseller of specified products at specified
locations. The agreements generally are terminable on 30 to 90
days notice or immediately upon the occurrence of certain events
and are subject to periodic renewal. The loss of a major
manufacturer or the deterioration of the Company's relationship
with a major manufacturer could have a material adverse effect on
the Company's business as certain product offerings that are
requested by customers would not be available to the Company.
The Company determines whether to purchase products from
distributors or directly from manufacturers by surveying prices
and product availability among the manufacturers and the
distributors with whom it has contractual relationships.
Distributors, which purchase products in large quantities, often
are able to offer a better price on products due to volume
discounts granted by manufacturers. The Company's contract with
Inacom Corp., through which it purchased 20% of its product
purchases in 1996, provides competitive pricing and inventory
management terms and conditions allowing for ninety day returns
of excess salable product, limited returns on opened product and
defective returns subject to the policies of the product
manufacturers. The agreement is terminable by either party.
While the loss of all of the Company's relationships with
distributors could result in higher product prices to the Company
and potentially reduce the Company's profit margins, the Company
believes that the loss of its relationship with any particular
distributor would not have a material adverse effect on the
Company's results of operations or financial condition due to the
availability of other sources of supply. As is customary in the
industry, the Company does not have any long-term agreements or
commitments, because competitive sources of supply are generally
available for such products.
COMPETITION
- -----------
The network integration market is highly competitive. The
Company competes with different classes of competitors, depending
on the type of business opportunity. For project-oriented sales,
the Company competes with system integrators and with computer
hardware manufacturers. The Company also competes with a wide
variety of local, regional and national hardware resellers for
add-on equipment sales. Because the Company is not as price-
aggressive as some of these competitors, the Company relies on
its sales force to provide superior servicing and post-sale
technical support to maintain its customer relationships.
Depending on the customer, the Company competes on the basis of
technological capability, price, breadth of product offerings and
quality of service. Competitors also vary project to project
depending upon the geographic location of the work to be
performed.
Although many of its competitors are larger and have
significantly greater financial, marketing and human resources
and geographic coverage than the Company, the Company believes
that it can compete effectively against these competitors on the
basis of its extensive experience in the network integration and
management market, authorization to sell a broad range of
products and established infrastructure.
Historically, manufacturers, which generally target
customers desiring products from only the particular
manufacturer, and computer retail chains, which focus principally
on product sales, have not consistently served the Company's
market component. The entry of such a competitor into the
Company's market component could have a material adverse effect
on the Company.
Employees
As of December 31, 1996, the Company employed
approximately 238 persons, 73 of whom were sales personnel, 138
of whom were service personnel and the remainder of whom were
administrative or management personnel. The Company's employees
have no union affiliations and the Company believes its
relationship with its employees is good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in
Farmington Hills, Michigan, in a leased facility consisting of
approximately 10,000 square feet of office space under a lease
expiring in February 1998, for rent totaling $13,300 per month.
The Company also leases two technical facilities. One is located
in Farmington Hills, Michigan, of approximately 7,000 square feet
under a lease expiring in March 1998 for rent totaling $4,100
per month. The other is located in Raleigh, North Carolina of
approximately 16,000 square feet under a lease
expiring October 2001 for rent totaling $11,500 per month. The
Company's telephone help center and other related operations are
located in Grand Rapids, Michigan, under a lease assumed in the
NSG acquisition. This facility is approximately 14,000 square
feet with net rent totaling $15,500 per month, expiring in 1998.
Additionally, the Company leases direct sales offices
totaling approximately 28,000 square feet with lease terms of
one to six years, in 16 locations in the United States. The
Company believes that its existing facilities and offices and
additional space available to it are adequate to meet its
requirements for its present and reasonably foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Stock
Market's SmallCap Market under the symbol "DSYS" and on the
Pacific Stock Exchange under the symbol "DSY". The high and low
sales prices for the Common Stock on the Nasdaq SmallCap Market
during the period from January 1, 1995, through the end of 1996
are set forth in the following table.
1995 High Low
-------------- ------- -------
1st Quarter $3.88 $2.50
2nd Quarter $3.75 $2.38
3rd Quarter $3.94 $2.75
4th Quarter $3.75 $2.13
1996 High Low
-------------- ------- -------
1st Quarter $3.00 $1.50
2nd Quarter $5.56 $2.00
3rd Quarter $7.25 $2.88
4th Quarter $11.88 $6.18
As of March 17, 1997 the approximate number of record
holders and beneficial owners of the Common Stock was 1,400,
based upon securities position listings information available to
the Company and the records of the Company's transfer agent.
The Company has never declared or paid any dividends
on its capital stock. The Company currently anticipates that all
of its earnings will be retained for development of the Company's
business, and does not anticipate paying any cash dividends in
the foreseeable future. Future cash dividends, if any, will be
at the discretion of the Company's Board of Directors and will
depend upon, among other things, the Company's future earnings,
operations, capital requirements and surplus, general financial
condition, contractual restrictions, and such other factors as
the Board of Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below, as of
December 31, 1996 and 1995 and for the years ended December 31,
1996, 1995 and 1994, are derived from the Company's audited
consolidated financial statements, and should be read in
conjunction with the Company's audited financial statements and
notes thereto and "Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS". The selected
financial data as of December 31, 1994, 1993 and 1992 and for the
years ended December 31, 1993 and 1992 are derived from audited
consolidated financial statements of the Company which are not
included in this report.
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994 1993 1992
(In thouseands, except per share data)
Statement of Operations Data:
Total revenues
$34,739 $30,506 $22,870 $26,172 $23,018
Cost of revenues (1,2) 27,174 27,933 19,572 22,383 19,882
-------------------------------------------------
Gross profit 7,565 2,573 3,298 3,789 3,136
Operating expenses 7,190 3,228 2,725 2,797 3,890
Other expenses 188 280 864 569 435
-------------------------------------------------
Income (loss) before income
taxes, minority interest
and extraordinary item 187 (935) (291) 423 (1,189)
Income tax benefit 55 - - - -
-------------------------------------------------
Income (loss before minority
interest and extraordinary
item 242 (935) (291) 423 (1,189)
Minority interest 3 - - - -
Extraordinary item 76 322 - - 2,202
-------- ------- -------- -------- -------
Net income (loss) $ 321 $ (613) $ (291) $ 423 $ 1,013
======== ======== ======== ======== =======
Fully Fully Fully
Primary Diluted Primary Primary Primary Diluted Primary Diluted
Net income (loss) per
common share (5) $0.12 $0.11 $(0.24) $(0.22)
==== ==== ===== =====
Proforma income
per common share (5) $0.30 $0.25 $1.24 $1.01
==== ==== ==== ====
Weighted average
common shares
outstanding (5) 2,719 3,025 2,560 1,328 1,400 1,700 815 1,030
===== ===== ===== ===== ===== ===== ==== ====
Balance Sheet Data (at period end)
1996 1995 1994 1993 1992
(In thousands)
Total assets $25,522 $11,938 $11,175 $ 7,421 $ 8,128
Working capital (deficiency) (1,581) 2,040 3,043 (735) (356)
Current liabilities 18,890 8,361 6,359 6,562 6,924
Long-term debt 75 100 234 423 1,186
Stockholders' equity 6,557 3,477 4,581 436 18
(1) See Note 1 of Notes to Consolidated Financial Statements.
(2) See "Item 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESUTS OF OPERATIONS" for a discussion of the
effect of a 1995 charge to cost of revenues for inventory obsolescence.
(3) See "Note 13 of Notes to Consolidated Financial Statements"
for a discussion of the effect of the Company's 1996 and 1995
gains on extinguishment of debt.
(4) See "Note 4 of Notes to Consolidated Financial Statements"
for a discussion of the effects of the Company's bankruptcy
reorganization. For 1992, includes extraordinary gain of $2.2
million relating to the Company's emergence from bankruptcy.
(5) Pro forma amounts in 1992 and 1993 include shares issuable
upon exercise of warrants issued in 1992 in connection with the
Company's bankruptcy reorganization. Primary amounts do not
include 300,000 issued and outstanding shares which were placed
in escrow at the closing of the Company's initial public
offering. See Note 1 of Notes to Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion and analysis compares the
financial results for the three year period ending December 31,
1996 and should be read in conjunction with the Company's
financial statements and notes thereto. A significant part of a
competitive strategy adopted in 1995 was to focus the Company's
resources in two areas; accelerating the Company's growth rate,
and expanding its network management support services offerings.
The results of operations for 1995 and 1996 reflect the
implementation of this strategy.
The following discussion and analysis contain a number of
"forward looking statements" within the meaning of the Securities
Exchange Act of 1934 and are subject to a number of risks and
uncertainties. These include general business conditions,
continuing favorable economic conditions, the failure of the
Company's customers to fulfill contractual commitments, the
ability of the Company to recruit and retain qualified personnel,
the ability of the Company to develop and sustain new customers
in geographic areas in which the Company has not previously
operated, the ability of the Company to successfully complete the
integration of its new offices and divisions into its operations,
the relative uncertainties in the market direction of emerging
technologies, the Company's ability to develop and sustain new
customers in new geographic areas, the potential loss of key
personnel within the new regions, the Company's ability to retain
the State of Michigan contract and a lack of market acceptance of
the Company's products and services in the new regions.
For the periods indicated, the following table sets forth
selected items from the Company's Consolidated Statements of
Operations, expressed as a percentage of total revenues:
YEARS ENDED DECEMBER 31,
1996 1995 1994
Revenues:
Net sales 81.2% 92.5% 88.3%
Service revenue 18.8% 7.5% 11.7%
Total revenues 100% 100% 100%
Cost of revenues:
Cost of sales 66.1% 87.7% 79.9%
Cost of service revenue 12.4% 3.8% 5.7%
Total cost of revenue 78.5% 91.5% 85.6%
Gross profit 21.5% 8.5% 14.4%
Operating expenses 20.5% 10.6% 11.9%
Other expenses 0.5% 1.0% 3.7%
Income(loss)before income taxes,
minority interest and
extraordinary item 0.5% -3.1% -1.2%
Income taxes 0.2% 0.0% 0.0%
Income(loss)before minority
interest and extraordinary item 0.7% -3.1% -1.2%
Minority interest
Extraordinary item 0.2% 1.1% 0.0%
Net income(loss) 0.9% -2.0% -1.2%
====== ====== ======
Year Ended December 31, 1996
Compared to Year Ended December 31, 1995
REVENUES.
- --------
The Company's total revenues reached another new high in
1996 rising by 15.3% to $34.7 million compared to $30.1 million
in 1995, primarily due to the Company's acquisitions of UNS and
NSG and, to a lesser extent, due to the expansion into the
eastern region of the United States. The NSG acquisition
resulted in the assignment of the State of Michigan contract
which directly contributed 23.6% of 1996 total revenues. The
Company's direct product sales component of the business remained
flat at $28.2 million in 1996 and 1995 as management continued to
focus on new account penetration through the offerings of
services in conjunction with product sales. The Company was able
to secure certain net sales by leveraging its strategic vendor
alliances and partnering with these vendors in manufacturer
direct sales efforts. However, these efforts only offset the flat
or decreasing sales that were anticipated prior to the NSG
acquisition and geographic expansion which occurred late in the
year.
Net sales for 1997 are expected to be significantly
greater as a result of the acquisition of NSG and UNS and the
expansion into the eastern region of the United States.
Service revenues increased $3.2 million in 1996 from 1995
to 18.8% of total revenues compared to 7.5% in 1995. This
increase is primarily due to the Company allocating its resources
to further develop its capabilities to deliver advance service
and remote and on site network management offerings. The Company
believes that as a result of the internal service infrastructure
developed in 1995 and 1996, the affiliation with UNS (see "Item I
- - Business - Business Strategy"), and the addition of highly-
skilled technical resources through the eastern region expansion,
it is well positioned to significantly increase service revenues
in both volume and percentage of sales in 1997.
COST OF REVENUES.
- ----------------
Cost of revenues in 1996 included the effects of the NSG
and UNS acquisitions and the Company's expansion into the eastern
region of the United States. Management refocused the Company's
business in conjunction with these changes by shifting resources
away from the lower margin direct product component of the
Company, in favor of the higher returns expected from these new
components. Primarily as a result of this activity, cost of
revenues decreased to 78.5% of total revenues in 1996 from 91.5%
of total revenues in 1995.
Cost of sales decreased as a percentage of total revenues
to 66.1% in 1996 from 87.7% in 1995 and decreased as a percentage
of net sales to 81.4% in 1996 from 94.9% in 1995. This decrease
was primarily due to the Company's continued focus on larger
project installation sales as well as its 1996 addition of
private label computer products and application development.
Cost of service revenues increased to 12.4% of total revenues in
1996 from 3.8% of total revenues in 1995 due to the significant
increase in total service revenues. Conversely, cost of service
revenue increased to 66% of service revenue in 1996 from 51% in
1995. This increase was primarily due to the employment of
significant technical resources in the fourth quarter in
anticipation of greater service revenue opportunities in 1997.
The Company also incurred research and development
expenses of $25,000 in 1996 in connection with the development of
its network management service offerings, as well as other
infrastructure costs. The Company believes that the market for
its network management services is characterized by rapid
technological advancement. To maintain its competitive position
in the industry, the Company expects to continue to invest
significant resources in new hardware, software and processes, as
well as in enhancements to existing processes including research
and development efforts of the Company and UNS, subject to
constraints on working capital. The Company had research and
development expenses of $82,000 in 1995.
OPERATING EXPENSES.
- ------------------
Operating expenses increased to 20.5% of total revenues
in 1996 from 10.6% of total revenues in 1995. Sales expenses
increased to 12.5% of total revenues in 1996 versus 6.3% of total
revenues in 1995. General and administrative expense was up to
8.2% of total revenues in 1996 from 4.3% of total revenues in
1995. These increases were due primarily to start-up
expenditures and the temporary duplicative expenses resulting
from the expansion of the operations through the acquisition of
NSG and the additional eastern region direct sales offices. The
company believes that both operating and sales expenses as a
percentage of total revenues will decrease by the second half of
1997 as the temporary expenses associated with the acquisition of
NSG and the addition of the eastern region sales offices are
eliminated.
OTHER EXPENSES.
- ---------------
Other expenses decreased $95,000 in 1996 to 0.5% of total
revenues, due primarily to the increase of $86,000 in interest
income earned from the investment of the balance of the proceeds
of the 1994 public offering, and miscellaneous UNS income of
$74,000. The decrease was partially offset by a $119,000 decrease
in interest expense due primarily to the Company's success at
negotiating more advantageous payment terms with its key vendors,
and to a lessor degree to the 1996 reduction in the Company's
bank borrowing rate to .25% above prime compared to the 1995 rate
of .75% above prime.
Year Ended December 31, 1995
Compared to Year Ended December 31, 1994
REVENUES.
- --------
The Company's total revenues reached a new high in 1995
rising by 33.4% to $30.1 million compared to $22.9 million in
1994, driven primarily by the Company's 1995 accelerated growth
goal. The Company utilized its direct product sales component of
the business to achieve this growth resulting in a net sales
increase of 39.7% to $28.2 million in 1995, compared to $20.2
million in 1994. Management focused the direct product sales
efforts to increasing per customer volume distribution and to new
account penetration. To a lesser degree, the Company was able to
increase its net sales by leveraging its strategic vendor
alliances and partnering with these vendors in manufacturer
direct sales efforts. Product returns decreased to 2.9% from 3.7%
of net sales in 1994 representing increased quality control
systems developed to address possible customer configuration
incompatibilities.
Service revenues declined $376,000 in 1995 from 1994 to
7.5% of net sales compared to 11.7% in 1994. This decrease is
primarily due to the Company allocating its service revenue
support resources to the research and development of its service
network offerings. To a lesser degree, the decline was
attributable to the 1995 sales compensation plan that was
implemented to incent increased product sales revenues, in lieu
of service revenues, as a part of the Company's 1995 revenue
growth plan. The Company believes that as a result of the
internal service infrastructure developed in 1994 and 1995, the
affiliation with UNS (see "Item I - Business - Business
Strategy"), and the 1996 compensation plan that incents the
marketing of these newly developed network offerings, it is well
positioned to significantly increase the service revenues in both
volume and percentage of sales in 1996.
COST OF REVENUES.
- ----------------
Cost of revenues for the fourth quarter of 1995 included
the impact of a $620,000 charge to cost of sales to cover the
Company's likely risk of future inventory obsolescence as the
technology curve outpaces the Company's ability to sell off
current inventory supplies. Management believes a significant
reduction in inventory levels is appropriate to improve capital
liquidity and to restructure the Company's business to address
the emerging network management opportunity by shifting resources
away from the lower margin direct product component of the
Company, in favor of the higher returns expected from the network
management component. Primarily as a result of this charge, cost
of revenues increased to 91.2% of total revenues in 1995 from
85.6% of total revenues in 1994. To a lesser degree, cost of
revenues was affected by the Company fulfilling the product
phases of a few key high volume contracts with low margins
recognized on the fulfilled phases. Subsequent phases of these
contracts will result in increased overall product and service
profitability.
Cost of sales increased as a percentage of total revenues
to 87.7% in 1995 from 79.9% in 1994 and increased as a percentage
of net sales to 94.9% in 1995 from 90.5% in 1994. Cost of service
revenues decreased to 3.8% of total revenues in 1995 from 5.7%
of total revenues in 1994 due to the significant increase in
total net sales and a reduction in service revenues. Conversely,
cost of service revenue increased to 51% of service revenue in
1995 from 48.7% in 1994. This increase was primarily due to
stable fixed expenses supporting a decreased revenue base, the
increase in service subcontractor costs, and to a lesser extent,
due to the temporary differences in the recognition of service
revenues invoiced in 1995, which produced a 29% increase in
deferred revenues in 1995 compared to 1994. The actual dollar
cost of service revenue decreased to $1.2 million in 1995 from
$1.3 million in 1994, resulting from the elimination of the
variable expenses associated with the decreased revenue.
The Company also incurred research and development
expenses of $82,000 in 1995 related to the development of its
network management service offerings. The Company believes that
the market for its network management services is characterized
by rapid rates of technological advancement. To maintain its
competitive position in the industry, the Company expects to
continue to invest significant resources in new hardware,
software and processes, as well as in enhancements to existing
processes including research and development efforts of the
Company and UNS, subject to constraints on working capital. The
Company had no such expenses in 1994 or 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
- --------------------------------------------
Selling, general and administrative expenses decreased to
10.6% of total revenues in 1995 from 11.9% of total revenues in
1994. Sales expenses also decreased to 6.3% of total revenues in
1995 versus 7.2% of total revenues in 1994. General and
administrative expense was down to 4.3% of total revenues in 1995
from 4.7% of total revenues in 1994. These decreases were due
primarily to economies of scale and to the Company's success at
significantly increasing total revenues and a less than
proportionate increase in the costs of sales and support.
OTHER EXPENSES.
- --------------
Other expenses decreased $584,000 in 1995 to 1.0% of total
revenues, due primarily to the one time expense of $389,000
incurred in 1994 in connection with the settlement of a disputed
bankruptcy claim. The decrease was also partially due to
decreased interest expense and to increased interest income from
the investment of the 1994 initial public offering proceeds (see
"Financial Condition").
FINANCIAL CONDITION
As of December 31, 1996, total cash and cash equivalents
totaled $1.5 million, a decrease of $1.7 million from 1995. Cash
used in operating activities for 1996 was $4,380,000 compared to
cash used of $50,000 in 1995, which primarily resulted from
significant increase in sales during the last quarter of the
year. This utilization was due primarily to an increase in
accounts receivable of 141% ($6,800,000) in 1996 over 1995 and
was partially offet by a $3,618,000 increase in accounts payable.
Investing activities consumed $1,900,000 during 1996 compared to
$96,000 in 1995 for major investments in components and computer
equipment and the acquisition of UNS and NSG.
The working capital deficiency as of December 31, 1996 was
$1.46 million compared to working capital of $2.04 million as of
December 31, 1995. The use of $1,133,000 in cash reserves to
purchase NSG, the $600,000 investment made in connection with the
network management center during 1996 as well as the investments
in general infrastructure needed to support the anticipated
increase in marketing activities had an adverse effect on the
Company's working capital. Since the decrease in cash reserves
related to the NSG acquisition occured on the end of the third
quarter, this deficiency did not affect the Company's ability to
operate in 1996. To offset the 1996 decrease in working capital,
the Company called its outstanding warrants in 1997 and raised
net proceeds of approximately $7.4 million upon the exercise of
over 1,256,000 common stock purchase warrants, resulting in a
significant improvement in the Comopany's financial position in
the first quarter of 1997.
The Company finances its business primarily through funds
generated internally through operations, trade credit and
advances under its $15 million line of credit with NBD Bank (the
"Bank"). The line of credit is secured by substantially all of
the Company's assets, with the exception of those inventory
assets acquired under the IBM credit line, and is due on demand
by the Bank. As of December 31, 1996, the line of credit bore
interest at .25% over the Bank's prime rate (effective rate of
9.0% at December 31, 1996). Borrowing under the line of credit
is limited by a formula calculated as the sum of 85% of qualified
receivables less than 90 days old and 25% of eligible inventory
and spare parts up to $2,250,000. As of December 31, 1996, the
formula permitted borrowings of up to $10,139,124, of which
$9,225,211 was outstanding.
The term of the current agreement extends to November 30,
1997, renewable annually, and can be terminated at any time by
the Company or the Bank. The agreement contains certain
covenants requiring the Company's receivables to be genuine and
free of all other encumbrances and requiring the Company's
inventory to be kept only at certain locations and to be free of
all other encumbrances. The Company believes it is in compliance
with these covenants to the satisfaction of the Bank.
The Company finances certain inventory sales through a
secured finance agreement with IBM Credit Corporation. As of
December 31, 1996, there was $550,000 outstanding under which the
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 debt incurred under
this agreement, IBM Credit Corporation was granted a first
security interest in the Company's inventory financed through
this agreement equal to the amount of the outstanding debt. This
agreement allows for thirty (30) days interest-free borrowings of
eligible inventory and net 15 discount percentages tied to the
prime rate. 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.
Under the final settlement of the Company's Plan of
Reorganization, the Company is obligated to pay approximately
$114,000 as of December 31, 1996 and has been released from the
prior contingent obligation. A total amount of $275,000 is
payable to the Chairman of the Board and one of the Company's
directors, in three equal annual installments beginning June 1998
under certain 13% subordinated notes issued pursuant to the Plan
of Reorganization. With the Plan of Reorganization completed, the
Company, at its option, may accelerate the payment of this
obligation. The subordinated notes are accounted for net of a
related $200,000 note receivable from the Chairman. There are no
further payment requirements anticipated as the bankruptcy case
has been closed by final decree as of January 16, 1997.
With the exception of the Company's expected further
investment in UNS, the amount of which is not determinable at
this time and the continued development of its network management
center and support offerings, the Company has no other material
commitments for capital expenditures.
The Company believes that the combination of present cash
balances, future operating cash flows, the net proceeds from the
successful call for redemption of its outstanding Stock Purchase
Warrants, and current credit facilities will be adequate to fund
the Company's internal growth and current short and long term
cash flow requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The financial statement schedule required by this item is
listed in response to Item 14 of this Report on Form 10-K and is
filed as part of this report.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Reports 17-18
Consolidated Balance Sheets as of December 31, 1996 and 1995 19
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 20
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 21
Consolidated Statements of Cash Flows for the Years Ended
December 31,1996,1995 and 1994 23
Notes to Consolidated Financial Statements 24-34
Independent Auditors' Report
The Board of Directors and Stockholders
Data Systems Network Corporation:
We have audited the accompanying consolidated balance sheets of
Data Systems Network Corporation as of December 31, 1996 and
1995, and the related consolidated statements of operations,
stockholders' 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 of these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Data Systems Network Corporation as of December 31,
1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Detroit, Michigan
March 4 , 1997
Independent Auditors' Report
To the Board of Directors and Shareholders of
Data Systems Network Corporation
Farmington Hills, Michigan
We have audited the statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1994.
These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these 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, such financial statements present fairly, in all
material respects, the results of its operations and its cash
flows for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Detroit, Michigan
March 10, 1995
DATA SYSTEMS NETWORK CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
------------ -------------
1996 1995
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,522,434 $ 3,171,544
Accounts receivable (net of allowance
of $67,609 and $39,967 at December 31,
1996 and 1995, respectively (Note 7) 12,102,794 5,249,771
Notes receivable 564,059 692,387
Inventories (Note 7) 2,563,201 992,922
Other current assets 646,112 294,236
------------ -------------
Total current assets $ 17,398,600 $ 10,400,860
============ =============
SERVICE PARTS, net 1,471,284 1,169,781
PROPERTY AND EQUIPMENT, net (Note 5) 1,811,923 297,029
GOODWILL, net (Note 2) 4,291,312
OTHER ASSETS 549,056 70,743
----------- ------------
TOTAL ASSETS (Note 7) $ 25,522,175 $11,938,413
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit (Note 7) $ 9,225,211 $ 3,956,000
Current portion of long-term
debt (Note 8) 213,039
Accounts payable (Note 7) 7,594,346 3,449,520
Accrued liabilities (Note 6) 813,831 514,693
Deferred maintenance revenues 1,256,566 228,060
---------- ----------
Total current liabilities 18,889,954 8,361,312
LONG-TERM DEBT (less current portion)
(Note 8) 75,000 100,000
COMMITMENTS AND CONTINGENCIES (Notes 9 and 13)
STOCKHOLDERS' EQUITY (Notes 4 and 14):
Preferred stock, authorized 1,000,000
shares, none outstanding
Common stock ($.01 par value; authorized
10,000,000 shares; issued and outstanding
3,255,000 and 2,715,000 shares at December 31,
1996 and 1995,respectively) 32,550 27,150
Additional paid-in capital 9,139,153 6,385,047
Accumulated deficit (2,614,482) (2,935,096)
---------- ---------
Total stockholders' equity 6,557,221 3,477,101
---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 25,522,175 $ 11,938,413
=========== ==========
See notes to consolidated financial statements
DATA SYSTEMS NETWORK CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Years Ended
December 31,
1996 1995 1994
----------- ---------- ---------
REVENUES:
Net sales $28,194,474 $28,209,390 $20,196,852
Service revenue 6,544,606 2,297,170 2,673,517
----------- ----------- -----------
Total revenues 34,739,080 30,506,560 22,870,369
COST OF REVENUES:
Cost of sales 22,972,345 26,760,288 18,269,356
Cost of service revenue 4,201,706 1,172,490 1,302,845
---------- ---------- ----------
Total cost of revenues 27,174,051 27,932,778 19,572,201
GROSS PROFIT 7,565,029 2,573,782 3,298,168
OPERATING EXPENSES:
Selling expenses 4,356,569 1,922,517 1,641,226
General and administrative
expenses 2,833,223 1,306,020 1,084,228
--------- --------- ---------
Total operating expenses 7,189,792 3,228,537 2,725,454
INCOME (LOSS) FROM OPERATIONS 375,237 (654,755) 572,714
OTHER INCOME (EXPENSES):
Interest expense (580,304) (461,572) (500,453)
Interest income 267,886 181,635 25,718
Other 124,301 (388,909)
-------- --------- ---------
Total other expenses,net (188,117) (279,937) (863,644)
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST AND
EXTRAORDINARY ITEM 187,120 (934,692) (290,930)
INCOME TAX BENEFIT (Note 10) 55,000
-------- --------- --------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EXTRAORDINARY ITEM 242,120 (934,692) (290,930)
MINORITY INTEREST IN SUBSIDIARY 3,000
EXTRAORDINARY ITEM -Gain recognized
upon extinguishment of debt
(Note 13) (75,494) 321,962
-------- -------- --------
NET INCOME (LOSS) $320,614 $(612,730) $(290,930)
Year December ended 31,
1996 1996 1995 1994
Fully
Primary Diluted Primary Primary
INCOME (LOSS) PER COMMON SHARE:
Income(loss) before
extraordinary item $0.09 $0.08 $(0.36) $(0.22)
Extraordinary item $0.03 $0.03 $0.12
------- ------- ------- ------
Net income (loss) $0.12 $0.11 $(0.24) $ (0.22)
======= ======= ======= =======
Weighted average number
of shares outstanding 2,719,091 3,025,110 2,560,281 1,328,479
========= ========= ========= =========
See notes to consolidated financial statements
DATA SYSTEMS NETWORK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
Retained
Additional Earnings
Preferred Common Paid-in (Accumulated
Stock Stock Capital Deficit) Total
--------- ------ ------- ---------- -----
BALANCES,
DECEMBER 31, 1993 None $14,450 $2,453,099 ($2,031,436) $436,113
Issuance of common stock,$.01
par value, et of offering
costs (Note 3) 12,700 4,423,185 4,435,885
Net loss (290,930) (290,930)
---------- ------- ---------- ---------- --------
BALANCES,
December 31,1994 None $27,150 $6,876,284 ($2,322,366) $4,581,068
Additional common
stock, net of
offering costs (169,275) (169,275)
Acquisition of
warrants for 109,719
shares of common
stock (Note 13) (321,962) (321,962)
Net loss (612,730) (612,730)
---------- --------- ---------- ---------- --------
BALANCES,
December 31,1995 None $27,150 $6,385,047 ($2,935,096) $3,477,101
Acquisition of
warrants for 10,413 (75,494) (75,494)
shares of common
stock (Note 13)
Issuance of common
stock in connection
with acquisition (Note 3) 5,400 2,829,600 2,835,400
Net income 320,614 320,614
---------- -------- ---------- --------- ---------
BALANCES,
December 31,1996 None $32,550 $9,139,153 ($2,614,482) $6,557,221
See notes to consolidated financial statements.
DATA SYSTEMS NETWORK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 320,614 $ (612,730) $ (290,930)
Adjustments to reconcile
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 365,227 381,910 377,342
Settlement with unsecured creditor - - 388,909
Extraordinary gain (75,494) (321,962) -
Provision for doubtful
receivables 27,642 (24,195) 26,772
Provision for inventory
obsolescence 195,767 701,976 139,433
Changes in assets and liabilities
that provided (used) cash net
of effects of acquisitions:
Accounts receivable (6,796,277) (1,222,831) (731,699)
Notes receivable 128,328 (692,387)
Inventories (1,766,046) 441,638 167,666
Other current assets (85,216) (227,073) (18,759)
Service parts 310,549 (27,321) (517,904)
Other assets (380,024) (24,215) (658)
Accounts payable 3,618,417 1,664,934 1,086,909
Accrued liabilities (410,136) (138,474) 236,998
Deferred maintenance
revenues 169,852 51,245 89,042
--------- --------- ---------
Net cash provided by
(used in) operating
activities (4,376,797) (49,485) 953,121
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment,
net of effect of acquisitions (771,411) (95,899) (219,897)
Purchase of UNS common stock (7,000)
Payments for NSG net assets
including transaction costs (1,133,035)
----------- ---------- ----------
Net cash used in
investing activities (1,911,446) (95,899) (219,897)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)
under bank line of credit 4,664,133 977,335 (1,801,439)
Payment of principal on
on long-term debt (25,000) (687,170) (392,084)
Proceeds from issuance of common
stock (net of offering costs) (169,275) 4,619,018
---------- --------- ---------
Net cash provided by
financing activities 4,639,133 120,890 2,425,495
---------- --------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (1,649,110) (24,494) 3,158,719
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 3,171,544 3,196,038 37,319
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $1,522,434 $3,171,544 $3,196,038
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid during the year for:
Interest $559,438 $468,535 $567,565
========== ========== ==========
Income taxes None None None
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
In February 1996, the Company purchased common stock of UNS for
$7,000. In connection with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired $204,745
Goodwill acquired 999,078
Cash paid for capital stock (7,000)
----------
Liabilities Assumed $1,196,823
==========
In September 1996, the Company purchased the net assets of The
Network Systems Group (NSG) of SofTech, Inc. In connection with
the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $1,870,579
Goodwill acquired 3,390,008
Common stock issued to seller (2,835,000)
Cash paid for net assets (890,000)
Transaction costs incurred (243,035)
----------
Liabilities Assumed $1,292,552
==========
During 1996, the Company was able to negotiate with its unsecured
creditors and reached a settlement to finalize all outstanding
claims in connection with the Plan of Reorganization for
approximately $114,000. This final liability has been recorded in
accounts payable. In negotiations with one creditor, a claim for
inventory of approximately $97,000 was released in lieu of any
further claims against the Company.
In March 1995, the Company and one of its unsecured creditors
reached a settlement in connection with the Company's Plan of
Reorganization. Accordingly, a liability of $370,909 was recorded
in long-term debt at December 31, 1994. An additional $18,000 in
legal fees was also included in liabilities.
See notes to consolidated financial statements.
DATA SYSTEMS NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. Summary of Significant Accounting Policies
ORGANIZATION. The accompanying consolidated financial statements
include the accounts of Data Systems Network Corporation and its
70% - owned subsidiary, Unified Network Services, Inc. ("UNS")
and the operation of the Network Systems Group ("NSG") from their
respective dates of purchase (Note 2). The principal activities
of Data Systems Network Corporation (the "Company") involve the
sales of microcomputer and network hardware and software and the
performance of maintenance and advance services, such as network
management, imaging and systems consulting, to major corporate
customers in the United States. The Company's corporate
headquarters are in Michigan. Additionally, there are two
technical centers, one in Michigan and one in North Carolina, and
16 direct sales offices located throughout the United States.
RECENT ACCOUNTING PRONOUNCEMENTS. In March 1995, the Financial
Accounting Standards Board "(FASB") issued 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 121"), which becomes effective for fiscal years beginning
after December 15, 1995. SFAS 121 established standards for
determining when impairment losses on long lived assets have
occurred and how impairment losses should be measured. The
Company adopted SFAS 121 effective January 1, 1996. The
financial statement impact of adopting SFAS 121 was not material.
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Effective in 1996, the Company
adopted the disclosure option of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 requires that companies
which do not choose to account for stock-based compensation as
prescribed by this statement, shall disclose the pro forma
effects on earnings per share as if SFAS 123 had been adopted.
Additionally, certain other disclosures are required with respect
to stock compensation and the assumptions used to determine the
pro forma effects of SFAS 123.
CASH AND CASH EQUIVALENTS. For the purposes of cash flows, the
Company considers all highly liquid investments with maturities
of three months or less when purchased as cash equivalents.
INVENTORIES are stated at the lower of cost or market. The
Company establishes an allowance for inventory obsolescence on a
specific identification basis and such allowance is adjusted
periodically for additions to and disposal of the identified
items.
SERVICE PARTS are stated at cost, and represent equipment spares
utilized for service contracts. Amortization is computed and is
included in cost of service revenue using the straight-line
method over their estimated useful lives of five and seven years.
Accumulated amortization was $886,130 and $662,556 at December
31, 1996 and 1995, respectively.
PROPERTY AND EQUIPMENT are stated at cost. Depreciation and
amortization are computed using straight-line methods over the
estimated useful lives of the respective assets ranging from five
to seven years.
GOODWILL which represents the excess of purchase price over fair
value of net assets acquired is being amortized on a straight-
line basis over twenty years, which is the estimated future
period to be benefited. Goodwill will be periodically reviewed
for impairment based on an assessment of future operations to
ensure that they are appropriately valued. Accumulated
amortization was $97,774 at December 31, 1996.
INCOME TAXES are accounted for under the asset and liability
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 and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.
RESEARCH AND DEVELOPMENT costs are expensed as incurred.
Research and development costs amounted to $24,516 and $82,052
in 1996 and 1995, respectively.
USE OF ESTIMATES The preparation of financial statements in
conformity of 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.
FINANCIAL INSTRUMENTS consist primarily of cash and cash
equivalents, bank line of credit, long-term debt, accounts
receivable and accounts payable. At December 31, 1996 and 1995,
the fair value of these financial instruments approximates the
carrying amount.
REVENUE RECOGNITION Revenue for consulting, network installation
services, time and materials services, and training is recognized
when the services are rendered. Revenue from the sale of
merchandise is recognized when shipped. Revenue from the sales
of after-installation service maintenance contracts is deferred
and recognized as income on a straight-line basis over the lives
of the respective contracts.
PRODUCT RETURNS are credited in the month they are authorized and
accepted, which approximates the results in each year using the
accrual method. The Company's customers have no contractual
rights to return products. The Company determines whether to
accept product returns on a case by case basis and will generally
accept product returns only upon payment of a restocking fee
and/or if the products may be returned to the manufacturer. For
the years 1996, 1995, and 1994, the returns were equal to 2.1%,
2.9% and 3.7%, respectively, of gross sales. The Company offers
no warranty separate from the product manufacturers' warranties.
INCOME(LOSS) PER COMMON SHARE is computed using the weighted
average number of shares of Common Stock outstanding during the
period, adjusted for the effects of the stock split effective May
17, 1994 (Note 3). The warrants issued in connection with the
Company's Plan of Reorganization are considered Common Stock
equivalents. Fully diluted earnings per share include 300,000
common shares that were placed in escrow pursuant to the
Company's initial public offering (Note 3). Common shares
issuable under stock options have been considered in the
computations of primary and fully diluted earnings (loss) per
share.
2. ACQUISITIONS
On February 22, 1996, the Company purchased 70% (7,000 shares) of
UNS for $7,000, in a transaction accounted for as a purchase.
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 $999,078, which is being accounted
for as goodwill and is being amortized over 20 years using a
straight-line method.
Effective September 3, 1996, the Company purchased the assets and
operations of The Network Services Group of SofTech, Inc.
("SofTech"), and assumed certain liabilities from SofTech. The
acquisition has been accounted for as a purchase. In exchange
for certain assets and liabilities, SofTech received cash in the
amount of $890,000 and 540,000 shares of the Company's common
stock valued at approximately $2,835,000. The purchase price was
allocated to the net assets acquired based upon their estimated
fair market values. The excess of the purchase price over the
estimated fair market value of the net assets acquired amounted
to $3,390,008, which is being accounted for as goodwill and is
being amortized over 20 years using a straight-line method.
Operating results of these acquired operations are included in
the consolidated financial statements from their respective dates
of purchase.
PROFORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements were
prepared to illustrate the effects of the NSG acquisition as if
it had occurred on January 1, 1995. The operation of UNS, from
the inception of its corporate existence, to the date of purchase
by the Company were not deemed to be material to the overall
financial statement presentation. The pro forma adjustments are
based on the available information and upon certain assumptions
the Company believes are reasonable. The pro forma financial
statements do not purport to represent what the Company's
financial statements would actually have been if such transaction
in fact had occurred on January 1, 1995, or to project the
Company's financial statements for any future period. The
adjustments below reflect the elimination of goodwill recorded in
connection with the transaction.
Pro forma Statement of Operations
for the Year Ended December 31, 1996 and 1995
(in thousands)
1996 1995
Total revenue $57,382 $68,419
========= ========
Loss before extraordinary items (2,689) (1,996)
========= ========
Net loss $ (2,610) $(1,674)
========= ========
Loss per common share $ (0.96) $(0.65)
========= ========
3. INITIAL PUBLIC OFFERING
On May 17, 1994, the Company increased the number of its
authorized shares of Common Stock to 10 million shares, increased
the number of its authorized shares of preferred stock to 1
million shares, assigned a par value of $.01, and a 1.7 to 1
stock split became effective. Weighted average number of shares
outstanding, earnings per share information, par value of Common
Stock and additional paid-in capital have been retroactively
restated to give effect to the stock split.
On November 7, 1994 the Company completed its initial public
offering ("IPO") of 600,000 units, ("Units"), with each unit
consisting of two shares of Common Stock and two Redeemable
Common Stock Purchase Warrants ("Warrants"), at a price of $10.00
per Unit before commissions and expenses. In addition, the
representative of the underwriters exercised a portion of the
over-allotment option to purchase 35,000 additional Units at a
price of $10.00 per Unit before commissions and expenses as of
November 30, 1994. The Common Stock and Warrants are immediately
detachable and separately transferable. Each Warrant entitles
the holder to purchase one share of Common Stock for a five year
period from the date of the initial offering. The Warrants are
exercisable at a price of the $6.25 per share (Note 14). The
Company realized gross proceeds totaling $6,350,000 from the
offering, before expenses, fees and commissions. Net proceeds,
after expenses, fees and commissions, were $4,266,610.
4. PLAN OF REORGANIZATION
On August 30, 1991, the Company filed a petition for relief under
Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Eastern District of Michigan (the
"Bankruptcy Court").
On May 22, 1992, the Company's Third Amended Plan of
Reorganization (the "Plan of Reorganization") was confirmed by
the Bankruptcy Court. The Plan of Reorganization became
effective after the close of business on June 30, 1992 and the
final decree which ordered the case closed was issued January 16,
1997.
Under the terms of the Plan of Reorganization, the Company's bank
was issued fully paid warrants for 5% of the authorized common
stock of the Company at that time, 85,000 shares, exercisable at
any time at $.006 per share. Such warrants have been recorded as
additional paid-in capital as of December 31, 1992 at the value
per share at which the new Common Stock was issued, as their
issuance was reasonably certain.
Pursuant to the Plan of Reorganization, the holders of
approximately $3.3 million of trade and other miscellaneous
claims will receive approximately $1.18 million (45% of allowed
claims). An additional $848,942 was allowed during March 1995
resulting in the recognition of an additional liability of
$370,909 at December 31, 1994. As of December 31, 1995,
approximately $213,000 is payable. This amount and any
additional contingent payments were settled for approximately
$114,000 in September 1996 (Note 13).
Such holders were also to receive fully paid warrants for 170,000
of the Company's authorized common stock when all claims are
fully settled, exercisable at any time at $.006 per share. The
warrants have been recorded as additional paid-in capital at the
value per share at which the new common stock was issued, as
their issuance was reasonably certain. During 1996 and 1995, the
Company entered into negotiations with certain unsecured
creditors resulting in the acceleration of scheduled payments in
exchange for forgiveness of related warrant debt (Note 13).
In connection with the Plan of Reorganization, the Company issued
1,445,000 shares of new Common Stock to two individuals
(previously owners of 51% of the Company prior to the Plan of
Reorganization) for $100,000 and other consideration. In
connection with the issuance of the new Common Stock 13%
subordinated notes payable were issued in exchange for a total
consideration of $300,000 ($100,000 in cash and $200,000 in a
promissory note receivable).
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at
December 31:
1996 1995
------ ------
Computer equipment $2,005,385 $667,037
Furniture and fixtures 427,210 212,696
Leasehold Improvements 166,567 11,348
Research and development equipment 80,000 80,000
--------- --------
Total 2,679,162 971,081
Less accumulated depreciation and
amortization 867,239 674,052
--------- --------
Property and Equipment, net $1,811,923 $297,029
========= =======
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
1996 1995
Other $245,028 $151,193
Compensation and benefits 221,944
Customer advances 108,019
Federal income taxes 100,000
State taxes 69,478 263,076
Interest 55,416 34,550
Payroll and related taxes 54,613
Professional fees 13,946 11,261
-------- -------
Total $813,831 $514,693
======== ========
7. LINES OF CREDIT
The Company has a bank line of credit of $15 million
bearing interest at a rate of .25% over the bank's
prime rate (effective rate of 9.0% at December 31,
1996). Borrowing limits are determined based on a
collateral formula which includes 85% of qualified
trade receivables and 25% of eligible inventory and
spare parts up to $2,250,000. The term of the current
agreement extends to November 30, 1997, is renewable
annually and can be terminated at any time by the
borrower or lender. As of December 31, 1996,
available credit under this line was $913,913.
The bank 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 to be kept at
designated locations and free of all other
encumbrances.
On July 28, 1995 the Company entered into a secured
finance agreement with IBM Credit Corporation. As of
December 31, 1996, the agreement extended 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 debt
incurred 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 thirty (30) day interest
free financing of eligible inventory and a variable
discount off of invoice for eligible product
purchases paid for within fifteen days from the date
of invoice. 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. The
amount outstanding at December 31, 1996 is
approximately $555,000 and has been included in
accounts payable.
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1996 1995
Claims payable to the Company's unsecured creditors in
the original face amount of $1.18 million (exclusive
of agreed upon offsets and credits) $213,039
13% subordinated notes payable to the Company's
majority stockholders in a principal amount of $275,000
and $300,000 at December 31, 1996 and 1995, respectively
due in 2000. If the appropriate conditions are met, the
holders may require the Company to redeem the notes in
three equal annual installments of $167,800 including
interest beginning July 1, 1998 through July 1, 2000.
Offset against this amount is a promissory note of
$200,000 receivable from the Company's Chairman and
Chief Executive Officer which was given in
consideration of the subordinated notes. 75,000 100,000
------ -------
Total 75,000 313,039
Less current portion 213,039
------ -------
Due after one year $75,000 $100,000
======= ========
9. LEASES
The Company has entered into several noncancelable
operating leases for office space, computer equipment,
and certain furniture and fixtures which will expire
at various dates through 2002. Approximate future
minimum annual rentals under noncancelable operating
leases as of December 31, 1996 are as follows:
1997 $1,130,500
1998 636,300
1999 334,000
2000 210,000
2001 188,900
2002 4,200
-------
$2,503,900
==========
Total rent expense for the years ended December 31,
1996, 1995, and 1994 was approximately $595,000,
$257,000 and $291,000, respectively.
10. Income Taxes
The tax effects of temporary differences that give
rise to significant portion of the deferred tax assets
and liabilities at December 31, 1996 and 1995 are
presented below:
1996 1995
---- -----
Current deferred tax assets (liabilities):
Capitalized inventory costs 13,000 13,000
Allowance for obsolete inventories 407,300 306,000
Prepaid costs (57,300) 0
Deferred maintenance revenues 2,000 0
Accrued liabilities 18,000 0
Allowance for doubtful accounts 22,000 14,000
------- -------
Total current deferred taxes 405,000 333,000
Noncurrent deferred tax assets (liabilities):
Net operating loss carryforwards 180,000 225,000
Depreciation and amortization 216,000 183,000
------- -------
Total noncurrent deferred taxes 396,000 408,000
Total net deferred taxes 801,000 741,000
Less valuation allowance (621,000) (741,000)
-------- -------
Total deferred taxes 180,000 None
======== =======
The reconciliation of the tax expense at
statutory rates to the reported tax
expense is as follows:
1996 1995 1994
------ ----- -----
Federal and state income taxes
(benefit at statutory rates) 91,000 ($208,300) ($99,000)
State income taxes, net of
Federal income taxes 16,000
Nondeductible expense 10,000 11,000 10,000
Extraordinary gain (26,000) (109,000)
Other (26,000) 35,000
Increase(decrease) in deferred
tax asset valuation allowance (120,000) 271,000 89,000
-------- ------- -------
Income tax(benefit) reported (55,000) None None
======== ======= =======
A reconciliation fo the current tax expense is as follows:
1996 1995 1994
----- ----- -----
Current Federal tax expense $100,000
Current State tax expense 25,000
Deferred tax expense (benefit) (60,000) $(271,000) $(89,000)
Increase (decrease) in deferred
tax asset valuation allowance (120,000) 271,000 89,000
---------- --------- --------
Total tax expense (benefit) (55,000) None None
========== ========= ========
The valuation allowance for deferred tax assets as
of December 31, 1996 and 1995 was $621,000 and
$741,000. respectively. The net change in the total
valuation allowance for the years ended December 31,
1996 and 1995 was a decrease of $180,000 and an
increase of $271,000, respectively. In assessing the
realizability of deferred tax assets, management
considers whether it is more likely than not that
some portion or all of the deferred tax assets will
not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation
of future taxable income during the periods in which
those temporary differences become deductible.
Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable
income and tax planning strategies in making this
assessment. Based upon the level of historical
taxable income, management believes it is more
likely than not the Company will realize the
benefits of these deductible differences, net of the
existing valuation allowances at December 31, 1996.
As of December 31, 1996, the net operating loss
carryforwards for UNS of approximately $530,000 were
available for federal income tax purposes through
2011.
11. MAJOR CUSTOMERS
The Company had one customer which accounted for
approximately 17% and 14% of revenues in 1995 and
1994, respectively. In 1996, another customer
accounted for approximately 24% of revenues.
12. STOCK OPTION PLAN
On April 29, 1994 the Company adopted the 1994 Stock
Option Plan. A total of 200,000 shares have been
reserved for issuance under the plan. In connection
with the IPO the Company granted options for 58,016
shares exercisable at a price of $4.75 per share
which was the fair market value at the date of
grant. The options vest over a two year period at
the rate of 50% per year, beginning on the first
anniversary of the grant date.
In 1996 and 1995, the Company granted options for
3,000 shares exercisable at a price of $4.00 and
$3.00 per share, respectively, which was the fair
market value at the grant date, to the Director's of
the Company. Such options vest one year from the
date of grant.
At December 31, 1996, there were 14,297 additional
shares available for grant under the Plan. The per
share weighted-average fair value of stock options
granted during 1996 and 1995 was $7.91 and $7.29,
respectively on the date of grant using the Black
Scholes option-pricing model with the following
weighted-average assumptions: 1996 - expected
dividend yield 0.0%, risk-free interest rate of
6.9%, expected volatility of the stock over the
expected life 30%, and and expected life of 10
years.
The Company applies APB Opinion No. 25 in accounting
for its plan and, accordingly, no compensation cost
has been recognized for its stock options in the
financial statements. Had the Company determined
compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123,
the Company's net income and earnings per share
would have been reduced to the pro forma amounts
indicated below:
1996 1995
------ ------
Net income(loss) (in thousands)
As reported $321 $(613)
Pro forma $ 85 $(637)
Income(loss) per share
As reported $0.11 $(0.24)
Pro forma $(0.03) $(0.25)
Pro forma net income and income per share reflect
only the options granted in 1996 and 1995.
Therefore, the full impact of calculating
compensation cost for stock options under SFAS No.
123 is not refected in the pro forma amounts
presented above because compensation cost is
reflected over the options' exercisable period of 10
years and compensation cost for options granted
prior to January 1, 1995 is not considered.
The following table illustrates the outstanding buy
warrants, stock options and related exercise prices
during each of the last three years (see also note
14).
Redeemable
Common
Stock
Plan of 1994 Stock Purchase
Reorganization Directors Option Plan Warrants
Balance December 31, 1993 255,000 -0- -0- -0-
Issued 58,016 1,270,000
------------------------------------------------
Balance December 31, 1994 255,000 -0- 58,016 1,270,000
Issued 3,000
Purchased (109,719)
------------------------------------------------
Balance December 31, 1995 145,281 3,000 58,016 1,270,000
Issued 3,000 153,137
Forfeited (25,450)
Purchased (10,413)
------------------------------------------------
December 31, 1996 134,868 6,000 185,703 1,270,000
======= ====== ======= =========
Weighted average
exercise price $.006 $ 3.50 $ 4.45 $6.25
==== ===== ===== ====
At December 31, 1996 and 1995, the weighted average
remaining contractual life of the outstanding
options was 8 and 9 years, respectively.
At December 31, 1996 and 1995, the number of options
exercisable was 56,892 and 31,446, respectively, and
weighted average exercise price of those options was
$4.75 and $4.58, respectively.
13. COMMITMENTS AND CONTINGENCIES
During the course of 1995 and 1996, the Company
negotiated with certain creditors to accelerate the
payment of unsecured debt providing the creditors
agree to certain terms, such as forgiveness of a
portion of unsecured debt and contingent liabilities
and cancellation of a portion of the fully paid
warrants, Under the terms of the 1992 Plan of
Reorganization, the unsecured creditors were granted
fully paid warrants for 170,000 shares of the
Company's authorized common stock and contingent
payments of up to a total of $650,000. This
contingent liability was not previously recorded as
the amount could not be reasonably estimated. As a
result of these extensive negotiations, the Company
has purchased approximately 10,000 warrants in 1995
and 10,400 in 1996. In addition, the Company
received the approval of the bankruptcy court to
enter into an agreement whereby all outstanding
claims have been settled with aggregate payments of
approximately $114,000 and the contingent payments
noted above have been eliminated. The bankruptcy
court issued its final decree on January 16, 1997.
The extraordinary gains of approximately $75,000 and
$321,000 in 1996 and 1995, respectively, represents
the purchase of the warrants and the extinguishment
of the related debt. Contingent liability payments
to be made and the related professional fees
incurred to conclude the bankruptcy reorganization
plan totaled $165,000, which is included as general
and administrative expense in the accompanying
consolidated statements of operations.
14. SUBSEQUENT EVENTS
During February 1997, the Company called all of its
outstanding Redeemable Common Stock Purchase
Warrants ("Purchase Warrants") for redemption as of
March 10, 1997 pursuant the Warrant Agreement,
dated October 28, 1994, setting forth the terms of
the Purchase Warrants. In connection with the
receipt of the required consent of the
representatives of the several underwriters in the
Company's initial public offering ( the
"Representative"), the Company and the
Representative entered into a consulting agreement
pursuant to which the Representative has agreed to
render certain consulting services for a fee of
$75,000 from the Company. In addition, the exercise
price of the warrants issued to the Representative
to purchase 60,000 units in connection with the
initial public offering ("Representative's Warrant")
was reduced from $16.50 to $12.50 per unit (each
unit consisting of two shares of Common Stock and
two Purchase Warrants) and the exercise price of the
Purchase Warrants which may be acquired upon
exercise of the Representative's Warrant was reduced
from $10.3125 per share to $6.25 per share. The
Representative also agreed to waive its rights,
under the Underwriting Agreement with the Company
dated October 28, 1994, to a commission for
soliciting exercises of Purchase Warrants and the
Company engaged an unaffiliated entity to assist in
the solicitation of exercises of Purchase Warrants
prior to the redemption date. As a condition to
receiving consent to the redemption, the Company
agreed to file a registration statement with the
Securities and Exchange Commission with respect to
the shares and Purchase Warrants underlying the
Representative's Warrant.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not required.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is
incorporated by reference from the Company's
definitive proxy statement relating to its 1997 annual
meeting of shareholders (the "1997 Proxy") under the
headings "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance".
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is
incorporated by reference from the 1997 Proxy under
the heading "Executive Compensation" (excluding the
Report of the Executive Compensation Committee and the
Stock Performance Graph).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is
incorporated by reference from the 1997 Proxy under
the heading "Securities Ownership of Principal
Shareholders and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is
incorporated by reference from the 1997 Proxy under
the heading "Certain Transactions".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement
Schedules and Exhibits.
(1) The financial statements required by
Item 8 of this report are listed and included in Item
8 of this report.
(2) The following financial statement
schedule of the Company is submitted herewith.
Schedule II - Valuation and Qualifying Accounts
(3) A list of the exhibits required to be
filed as part of this Form 10-K is included under the
heading "Exhibit Index" in this Form 10-K and
incorporated herein by reference. Included in such
list as Item 10.3 (1994 Stock Option Plan) are the
Company's management contracts and compensatory plans
and arrangements which are required to be filed as
exhibits to this Form 10-K.
(b) Reports on Form 8-K.
None filed in the most recent quarter
SCHEDULE II
DATA SYSTEMS NETWORK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
ADDITIONS
======================
Balance at Charged to
beginning of costs and Charged to Balance at
period expenses other accounts end of period
Description
Year ended December 31, 1996:
Allowances for doubtful receivables 39,967 91,335 (63,693) 67,609
Allowance for inventory obsolescence 978,446 195,767 1,174,213
Year ended December 31, 1995:
Allowances for doubtful receivables 64,162 32,016 (56,211) 39,967
Allowance for inventory obsolescence 276,469 760,888 (58,911) 978,446
Year ended December 31, 1994:
Allowances for doubtful receivables 48,010 26,772 (10,620) 64,162
Allowance for inventory obsolescence 179,567 139,433 (42,531) 276,469
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) 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
By: Michael W. Grieves
------------------
Michael W. Grieves
Chairman, President
and Chief Executive Officer
Dated March 27, 1997
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 indicated as of
March 27, 1997.
Michael W. Grieves
- ------------------
Michael W. Grieves
Chairman of the Board, President,
Chief Executive Officer and Director (Principal
Executive Officer)
Philip M. Goy
- -------------
Philip M. Goy
Vice President-Finance and
Chief Financial Officer (Principal Financial Officer)
Julie A. Vitale-Johnston
- ------------------------
Julie A. Vitale-Johnston
Controller (Principal Accounting Officer)
Richard R. Burkhart
- -------------------
Richard R. Burkhart
Director and Treasurer
Walter J. Aspatore
- ------------------
Walter J. Aspatore
Director
Jerry A. Dusa
- -------------
Jerry A. Dusa
Director
*By:Michael W. Grieves
------------------
Michael W. Grieves
Attorney-in-Fact
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
2.11 Third Amended Plan of Reorganization
2.28 Asset Purchase Agreement, dated September 12, 1996, by and
among DSNC, Information Decisions, Inc., System Constructs, Inc.
and SofTech, Inc. Schedules to the Agreement, listed on
pp iii-iv of the Table of Contents of the Agreement, were not
filed, but will be provided to the Commission supplementally
upon request.
3.11 Fourth Amended and Restated Articles of Incorporation, as amended
3.21 Bylaws of the Company, as amended
4.11 Specimen Certificate of Common Stock
4.21 Specimen Redeemable Common Stock Purchase Warrant Certificate
4.32 Representative's Warrant, datedNovember 7, 1994
4.3(a) Amendment to Representative's Warrant (filed as Exhibit 10.14)
4.411 Warrant to Purchase Common Stock issuedto NBD Bank, N.A.
10.11 Compaq Computer Corporation AuthorizedDealer Agreement
10.21 Michigan National Corporation PersonalComputer Agreement
10.31 1994 Stock Option Plan
10.3(a)6 Form of stock option agreement
10.3(b) 1994 Stock Option Agreement (as amended and restated
October 1996)
10.4(a)3 Letter Agreement dated February 1, 1995 between NBD Bank
and the Company
10.4(b)9 Restated Business Financing Agreement-NBD Secured Credit
Agreement, Dated November 27, 1996
10.51 Form of Warrant Agreement between the Company and American
Stock Transfer and Trust Company, dated October 28, 1994
10.62 Stock Escrow Agreement among the Company, certain of its
shareholders and American Stock Transfer and Trust
Company dated October 28, 1994
10.8 Subordinated Promissory Notes issued to Grieves and Burkhart
dated May 22, 1992
10.91 Promissory Note, dated June 30, 1992, from Michael W. Grieves
10.121 Form of letter agreement between the Company and Thomas James
Associates, Inc., dated November 7, 1994
10.133 Letter Agreement dated February 8, 1995
10.147 Shareholder Agreement dated February 22, 1996 among DSNC
and Unified Network Services
10.157 Stock Purchse Agreement dated February 22, 1996 among
DSNC and Unified Network Services
10.167 Amended 1994 Stock Option Plan
10.168 Registration Rights Agreement, dated as of September 12, 1996
entered into by DSNC and SofTech, Inc.
10.1710 Financial Consulting Agreement between the Company and
H.J. Meyers and Co., Inc. and Amendment of Representative's
Warrant dated as of December 22, 1996.
10.1810 Warrant Redemption Agreement dated January 21, 1997 between the
Company and H.J.Meyers, and Co., Inc.
10.1910 Letter Agreement between the Company and First Colonial
Securities Group, Inc., dated as of January 29, 1997.
116 Computation of Earnings Per Share
23.110 Consent of KPMG Peat Marwick LLP
23.210 Consent of Deloitte & Touche LLP
24.16 Power of Attorney of Walter J. Aspatore
24.26 Power of Attorney of Richard R. Burkhart
24.36 Power of Attorney of Jerry A. Dusa
2710 Financial Data Schedule
1 Incorporated by reference from the Company'sRegistration
Statement on Form S-1, No. 33-81350, as amended.
2 Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1994.
3 Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
4 Incomporated by reference from the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1995.
5 Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1995.
6 Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
7 Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
8 Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the period ended September 27, 1996.
9 Incorporated by reference from the Company's Quarterly Report on Form
10-Q for period ended September 30, 1996.
10 Filed herewith.
Exhibit 10.17
H.J. MEYERS & CO., INC.
Investment Bankers
1895 Mount Hope Avenue,
Rochester, New York I4620-4596
716-256-4700, Fax 7i6-256-5043, 800-678-4852
Member NASD SIPC
December 22, 1996
Data Systems Network Corporation
34705 West Twelve Mile Road
Suite 300
Farmington @lls, MI 48331
ATTN: Philip M. Goy
FINANCIAL CONSULTING CONTRACT AND AMENDMENT OF
REPRESENTATIVE'S WARRANT
Gentlemen:
This Agreement made as of December 22,
1996, by and between, Data Systems Network
Corporation, a Michigan corporation having
its business address at 34705 West Twelve
Mile Road, Suite 300, Farmington Hills, Nfl
48331 (hereinafter the "Company") and H.J.
Meyers & Co., Inc., a New York corporation,
having its principal place of business at
1895 Mt. Hope Avenue, Rochester, New York
14620 (hereinafter "Consultant").
In consideration of the mutual promises
contained herein and on the terms and
conditions hereinafter set forth, the Company
and Consultant agree as follows;
1. Provision of Services-.
(a) Consultant agrees, to the
extent reasonably requested and required in
the conduct of the business of the Company,
to place at the disposal of the Company its
judgment and experience and to provide
business development services to the Company
including the following:
(i) assist the Company in
its public equity
marketing efforts;
(ii) provide access to
the Consultant's retail
sales force through
roadshow
stops and conference calls;
(iii) advise with regard to
shareholder relations and public
relations matters.
All such services shall at all times be at the request of
the Company.
(b) Consultant agrees to use its best efforts
at all times in the furnishing of advice
and recommendations, and for this purpose
Consultant shall at all times maintain or
keep available
for the Company an adequate organization of
personnel or a network of outside professionals
for the performance of its obligations under
this Agreement.
(c) Consultant agrees to provide
advice to the Company regarding the redemption
of the Company's Redeemable Common Stock
Purchase Warrants (the "Warrants").
(d) Consultant agrees to use its best
efforts to assist the Company in the redemption
of the Warrants.
(e) Consultant agrees to exercise its
Representative's Warrant subject to market
conditions and price levels of the Company's
common stock and warrants.
(f) Consultant agrees the information
provided by the Company shall not be disclosed
in whole or in part to any person other than
directors, officers, employees and
representatives (including legal and financial
advisers) who need to know the information for
the purpose of providing advice and
recommendations (it being understood that such
directors, officers, employees and
representatives shall be informed of the
confidential nature of the information and shall
be required to treat the information
confidentially).
2. Compensation. The Company agrees to
pay the Consultant a non-refundable fee of
Seventy Five Thousand Dollars ($75,000) payable
on February 20, 1997.
The Company agrees to adjust the exercise
price of the Representative's Warrant from its
current level (that being 165 percent of the
public offering price per unit) to $12.50 per
unit. The Company also agrees to adjust the
exercise price of the Purchase Warrants within
such units from 165 percent of the public
exercise price of the Purchase Warrants to $6.25
per share (that amount being equal to the public
exercise price of the Purchase Warrant).
The Company agrees to reimburse Consultant
for its reasonable expenses incurred by the
Consultant in connection with its services
hereunder. All expenses shall be approved in
advance by the Company in writing.
3. Expenses Payment Schedule.
Consultant will invoice the Company for its
actual expenses for each month within fifteen
(15) days of the end of the month. Payment of
invoices will be due within 15 days of receipt.
4. Liability of Consultant. In
furnishing the Company with management advice
and other services as herein provided, neither
Consultant nor any officer, director or agent
thereof shall be liable to the Company or its
creditors for errors of judgment except in the
event of willfull malfeasance, bad faith or
gross negligence in the performance of its
duties or reckless disregard of its other
obligations and duties under the terms of this
Agreement.
It is further understood and agreed that
Consultant may rely upon information furnished
if it is reasonably believed to be accurate and
reliable and that, except as herein provided,
Consultant shall not be accountable for any loss
suffered by the Company by reason of the
Company's action or non-action on the basis of
any advice, recommendation or approval of
Consultant, its partners, employees or agents.
5. Status of Consultant. Consultant
shall be deemed to be an independent contractor
and, except as expressly provided or authorized
in this Agreement, shall have no authority to
act for or represent the Company.
6. Other Activities of Consultant. The
Company recognizes that Consultant now renders
and may continue to render management and other
services to other companies which may or may not
have policies and conduct activities similar to
those ' of the Company. Consultant shall be
free to render such advice and other services
and the Company hereby consents thereto.
Consultant shall not be required to devote its
full time and attention to the performance of
its duties under this Agreement, but shall
devote only so much of its time and attention as
it deems reasonable or necessary for such
purposes.
7. Control. Nothing contained herein
shall be deemed to require the Company to take
any action contrary to its Articles of
Incorporation or By-Laws, or any applicable
statute or regulation, or to deprive its Board
of Directors of their responsibility for any
control of the conduct or the affairs of the
Company.
8. Term. Consultant's retention
hereunder shall be for a term of one year
commencing upon the execution of this agreement
and can be terminated at any time by either
party without any modification to the
aforementioned compensation arrangements.
9. Miscellaneous. This Agreement sets
forth the entire agreement and understanding
between the parties and supersedes all prior
discussions, agreements and understandings of
every and any nature between them with respect
to the subject matter hereof This Agreement is
executed in and shall be construed and
interpreted according to the laws of the State
of New York.
IN WITNESS WHEREOF, the parties have caused
this Agreement to be signed by their respective
officers or representatives duly authorized the
day and year first above written.
H.J. MEYERS &
CO.,
BY:
Michael S. Smith
Managing Director
Corporate Finance
Accepted and Agreed to:
DATA SYSTEMS NETWORK CORPORATION
BY:
Philip M. Goy
Vice President of Finance
Exhibit 10.18
H.J. Meyers and Co., Inc.
Investment Bankers
1895 Mount Hope Avenue,
Rochester, New York 14620-4596
716-256-4700, Fax 716-256-
5043, 8oo-678-4852
Member NASD SIPC
January 27, 1997
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmiington Hills, NE 48331
ATTN: Philip M. Goy
WARRANT REDEMPTION AGREEMENT
Gentlemen:
Reference is made to our recent
discussions with respect to a proposed
redemption of Warrants (the "Warrants") by
Data Systems Network Corporation (the
"Company") as hereinafter described.
Warrant Redemption. H.J. Meyers &
Co., Inc. ("Meyers') hereby grants the
Company permission to redeem the
outstanding Warrants (the "Redemption") in
accordance with the Warrant Agreement
dated October 28, 1994.
Solicitation Fees. Meyers hereby
waives and releases the Company from its
obligation under the Underwriting
Agreement, dated October 28, 1994 between
Thomas James Associates Inc. and the
Company, to pay Meyers a commission of 7%
of the aggregate exercise price for each
Warrant solicited by a member of the
National Association of Securities
Dealers.
Representative's Warrants. The
Company agrees to file a Registration
Statement on form S-3 with the Securities
and Exchange Commission for the securities
underlying the Representative's Warrant,
those being the shares of Common Stock and
Common Stock Purchase Warrants, by no
later than February 15, 1997 and the
Company agrees to use its best efforts to
cause the above filings to be declared
effective by the Commission as soon as
possible.
If the above correctly sets forth your
understanding, please so indicate by executing
the three (3) originals provided to you in the
space provided for below, returning to us two
(2) originals and retaining one (1) original for
your records.
Very truly yours,
H. J.
MEYERS & CO.,
INC.
BY:
Michael S. Smith
Managing Director
Corporate Finance
Accepted and Agreed to:
DATA SYSTEMS NETWORK CORPORATION
BY:
Phifip M. Goy
Vice President of Finance
Schedule 10.1910
January 29, 1997
The Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Gentlemen:
Reference is made to recent discussions between our
firm and Data Systems Network Corporation (the
"Company") concerning your retention of First Colonial
Securities Group, Inc. ("First Colonial") to provide
financial advisory services during the Warrant
Redemption Period described below. The Company has
informed us that it will, on or about February 7,
1997, notify the holders of its Redeemable Common
Stock Purchase Warrants (each a "Warrant" and
collectively the "Warrants") that, pursuant to the
terms of the Warrants, it will call the Warrants for
redemption on March 10, 1997 (the "Redemption Date").
The redemption of the Warrants is referred to herein
as the "Transaction".
The purpose of this letter is to outline the basic
terms and conditions of the Transaction based on
information currently available about the Company and
the securities markets.
On the basis of recent discussions and of preliminary
reports and financial statements submitted by you and
the representations that you have made to us
describing the Company and its principals, the present
and proposed business activities of the Company and
the Company's operations, financial condition and
capital structure, we hereby confirm that we will act
as warrant solicitation agent on a "best efforts"
basis for this Transaction. First Colonial will act
as lead agent and if necessary, arrange with other
broker-dealers to become, in turn, agents of First
Colonial in accordance with the following basic terms
and conditions:
1. Background. The Company issued the Warrants as
part of its initial public offering in November 1994,
which offering was registered with the Securities and
Exchange Commission (the "SEC") and under the laws of
various states. Currently, each Warrant entitles the
holder, upon exercise, to purchase one share of the
Company's common stock at an exercise price of $6.25
(the "Exercise Price"). The warrants currently trade
on the NASDAQ Small-Cap Market. On December 19, 1996,
a post-effective amendment to the Company's
registration statement (as amended, the "Registration
Statement") became effective with respect to 1,270,000
shares of the Company's common stock, such common
stock to be made available to any and all holders of
Warrants who exercise such Warrants. The Registration
Statement was supplemented on January 29, 1997 (the
"Supplement").
The Company has requested First Colonial to act
as warrant solicitation agent and to solicit the
holders of the warrants to exercise such warrants
during a period (the "Warrant Redemption Period")
commencing February 7, 1997 (the "Commencement Date")
and ending on the Redemption Date. During the Warrant
Redemption Period, First Colonial will assist the
Company by speaking with brokers and holders of
Warrants, and where necessary, arranging personal
meetings.
First Colonial (and its agents) will act solely
as warrant solicitation agent and will not act (and
will not be construed as acting) as an underwriter of
either the common stock or the Warrants. During the
Warrant Redemption period, the Company will not engage
any firm or entity other than First Colonial to act as
Warrant solicitation agent, and each holder who
exercises Warrants during the Warrant Redemption
Period will be deemed to have done so through or by
reason of the efforts of First Colonial.
2. Compensation. First Colonial shall be
compensated for its services in connection with the
Transaction herein as follows:
First Colonial will be paid an advisory fee within
fifteen (15) days following the Redemption Date equal
to 4% of the gross proceeds realized from any and all
Warrant holders exercising their rights and purchasing
common stock of the Company, which exercise occurs
during the Warrant Redemption Period. First Colonial
shall also receive a $30,000.00 non-accountable
expense allowance payable within fifteen (15) days
following the Redemption Date (increased to $60,000 if
1,183,000 of the Warrants are exercised). The amount
of $30,000.00 is due upon signing this letter, as an
advance against fees and expenses. The advisory fee
shall be paid with respect to the exercise by a holder
of a Warrant only to the extent that (I) at the time
of exercise by a Warrant holder, the price of the
Company's common stock is higher than the exercise
price of the Warrant; (II) the exercise was solicited
by an NASD member; (III) the Warrant is not held in a
discretionary account by First Colonial;' (IV)
disclosure of the compensation arrangements is made to
the holder of the Warrant in documents provided by the
Company or by First Colonial at the time of exercise;
and (V) the solicitation is in accordance with Rule
10b-6 promulgated by SEC.
3. Blue Sky. The Company warrants and represents to
First Colonial that its common stock and Warrants
covered by the Registration Statement, including the
Supplement, are either registered or exempt from
registration in every State of the United States, and
that the Company will, at its expense, make any and
all filings required by any State necessary in order
to maintain such registration or exemption in
connection with the Transaction.
4. Warrant Agent and Transfer Agent. The Company
represents and warrants to First Colonial that
American Stock Transfer and Trust Company is currently
acting as Warrant Agent and as the Registrar and
Transfer Agent for the common stock.
5. Condition and Financial History of the Company;
Indemnification. The Company's financial history
shall be substantially as represented to us heretofore
and, in particular, as represented in various
financial statements and other documentary information
which you have delivered and shall deliver to us. The
Company hereby agrees to indemnify, defend and hold
harmless First Colonial, its directors, officers,
employees, counsel and agents (the "Indemnified
Parties") , against any losses, damages, claims,
liabilities or expenses, joint or several, to which
the Indemnified Parties or any of them may be subject,
under federal or state laws (1) arising out of or
based upon any untrue or alleged untrue statement of
any material fact contained in the Registration
Statement (including the information incorporated
therein by reference) or the Supplement, or any
amendment or supplement thereto, or arising out of or
based upon the omission or alleged omission to state
therein a material face necessary to make the
statements therein not misleading; or (2) arising out
of a breach by the Company of any representation made
to First Colonial's engagement as warrant solicitation
agent.
6. Examination of Corporate Books and Records;
Consultation with Company Auditors. On or prior to
the Redemption Date (I) the Company shall supply with
such financial statements, contracts and other
corporate records and documents as we shall deem
necessary and it shall supply our counsel or parties
performing due diligence functions for us with all
corporate papers, contracts, documents and information
as may be required by them in connection with their
examination; (ii) we, our counsel, and any accounting
experts we deem necessary shall have the right to
examine the audits and working papers of the Company
and to meet with the Company's independent
accountants; and (iii) the Company will use its best
efforts to cause its auditors to be responsive to any
inquiries we may make about the audit procedures and
accounting principles used in connection with the
company with the Company's financial statements or the
proposed Transaction.
As a condition to your furnishing such
information to us, we agree, as set forth below, to
treat confidentially such information furnished to us
by you or on your behalf, either previously or in the
future, including any other information or notes
derived by us or our financial advisors, independent
auditors, legal counsel or other agents or
representatives from any such information (herein
collectively referred to as the "Evaluation
Material"). For purposes of this Letter Agreement,
the phrase "Evaluation Material" shall not include
information which (I) becomes lawfully available to
the public other than as a result of a disclosure by
us, our representatives or our agents, (ii) was
lawfully available to us on a nonconfidential basis
prior to its disclosure to us by you or your agents or
(iii) lawfully becomes available to us on a
nonconfidential basis from a source other than you or
your agents, provided that such source is not bound by
a confidentiality agreement with you of which we have
been made aware. We hereby agree that the Evaluation
Material will be used by us and our agents only in
connection with our obligations with respect to the
Transaction, and that the Evaluation Material will be
kept confidential by us and our representatives and
agents; provided however, that (I) any of such
information may be disclosed to our directors,
officers, employees, representative and agents who
need to know such information for the purpose of
performing our obligations in connection with the
Transaction (it being understood that such directors,
officers, employees, representatives and agents shall
be informed by us of the confidential nature of such
information and shall be directed by us to treat such
information confidentially and not to use the
information to your detriment), and (ii) any other
disclosure of such information may be made to which
you consent in writing or which we are required to
make by law (of which disclosure we will provide you
prompt notice prior to such disclosure).
7. Expense of Transaction. The Company agrees to
bear all costs and expenses incurred by it, and
typically borne by the issuer, incident to the
issuance, purchase, sale and delivery of the shares,
including the expenses and fees incident to the
preparation, printing and filing of the Registration
Statement and prospectus, the Supplement and all
amendments and all exhibits thereto with the SEC and
state securities commissioners, printing of
appropriate documents, all costs and reasonable
counsel fees in connection with the qualifications of
the Transaction under the state securities (Blue Sky)
laws of each State, costs of printing and preparing
appropriate filing documents and as many copies of the
appropriate selling documents as we may reasonably
request, and any subsequent distribution required by
law, related expenses, including all amendments and
supplements to such documents, and the cost of its
attorneys and accountants and all "Blue Sky" and
related costs. Legal counsel to the Company shall
undertake responsibility for the qualification of the
common stock which is the subject of the Registration
Statement under all state securities laws. The
Company will provide First Colonial with sufficient
copies of the Company's prospectus included in the
Registration Statement, as supplemented, for delivery
to holders of Warrants.
8. Syndication. First Colonial may recommend that a
syndicate of selected dealers be formed to assist in
having their Warrant holder clients exercise their
Warrants and purchase common stock. If so, the
syndicate will be chosen by First Colonial with prior
approval of the Company not to be unreasonably
withheld; provided, however, that nothing on this
Section 8 shall obligate the Company to pay
compensation in excess of the advisory fee specified
in Section 2 hereof.
9. Finder. The Company represents and warrants that
is has not incurred any liability to pay any amounts
in connection with the Transaction other than to
Josephthal, Lyon & Ross and to A.G. Edwards & Sons,
Inc., in each case as described in the Supplement, and
that the Company will be solely responsible for any
and all such payments.
10. Disclaimer of Responsibility if Transaction Not
Consummated. First Colonial shall not be responsible
for any expenses of the Company or others, or for any
charges or claims relative to the Transaction if it is
not consummated other than due to the fault of First
Colonial.
11. Entire Agreement. This letter sets forth the
entire agreement of the parties and supersedes all
prior discussions, agreements and understandings
between the parties with respect to the subject matter
hereof. The agreement evidenced by this letter shall
be governed by the laws of the State of Michigan,
without regard to its conflicts of laws principles.
Please confirm your agreement to the forgoing by
signing and returning to us the enclosed copy of this
letter, along with a check for $30,000.00. Thank you.
Agreed to and accepted this 29th day of January,
1997.
First Colonial Securities
Data Systems Network Corporation
Group, Inc
By: By:
Ben Lichtenberg
Philip M. Goy
Director of Investment
Vice President of Finance
Banking
DATA SYSTEMS NETWORK CORPORATION
EXHIBIT 11
Computation of Earnings Per Share
- ------------------------------------------------------
NUMBER OF SHARES
Weighted average shares issued 3,019,091 3,025,110
Less shares held in escrow (300,000)
--------- ---------
Weighted average shares outstanding 2,719,091 3,025,110
========= =========
EARNINGS
Earnings before extraordinary item $245,120 $245,120
Extraordinary item 75,494 75,494
------- --------
Net income $320,614 $320,614
======== ========
EARNINGS PER SHARE
Net income before extraordinary item $0.09 $0.08
Extraordinary item $0.03 $0.03
-------- --------
Net income $0.12 $0.11
Exhibit 23.1
A6 Sample accountants_ consent when financial
statements filed on Form 10-K are incorporated by
reference in a previously filed and effective Form S-3
or S-8 (Firm Letterhead) The Board of Directors
Data Systems Network Corporation:
We consent to incorporation by reference in the
registration statement No. 333-5505 on Form S-8 of
Data Systems Network Corporation of our reports dated
March 4, 1997, relating to the consolidated balance
sheets of Data Systems Network Corporation as of
December 31, 1996, and 1995, and the related
consolidated statements of operations, stockholders'
equity and cash flows for the two years then ended and
the related schedule, which reports appear in the
December 31, 1996, annual report on Form 10-K of Data
Systems Network Corporation.
KPMG Peat Marwick LLP
Detroit, Michigan
EXHIBIT 23.210
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this
Registration Statement of Data Systems Network
corporation of Form S-8 of our report dated March 10,
1995, appearing in the Annual Report on Form 10-K of
Data Systems Network Corporation for the year ended
December 31, 1994.
Detroit, Michigan
March 28, 1997
EXHIBIT 24.1
DATA SYSTEMS NETWORK CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the
undersigned constitutes and appoints Michael W.
Grieves and Philip M. Goy, and each of them, his true
and lawful attorneys-in-fact and agents, with full
power of substitution, and resubstitution for him and
in his name, place and stead, in any and all
capacities, to sign any and all amendments to a
certain Registration Statement on Form S-3 to be filed
by Data Systems Network Corporation, and to file the
same with the Securities and Exchange Commission,
granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and
perform each and every act and thing requisite and
necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully
do or or cause to be done by virtue hereof.
Dated: February 28, 1997
Walter J. Aspatore
- -------------------
Walter J. Aspatore
EXHIBIT
24.2
DATA SYSTEMS NETWORK CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the
undersigned constitutes and appoints Michael W.
Grieves and Philip M. Goy, and each of them, his true
and lawful attorneys-in-fact and agents, with full
power of substitution, and resubstitution for him and
in his name, place and stead, in any and all
capacities, to sign any and all amendments to a
certain Registration Statement on Form S-3 to be filed
by Data Systems Network Corporation, and to file the
same with the Securities and Exchange Commission,
granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and
perform each and every act and thing requisite and
necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully
do or or cause to be done by virtue hereof.
Dated: February 28, 1997
Richard R. Burkhart
- -------------------
Richard R. Burkhart
EXHIBIT
24.3
DATA SYSTEMS NETWORK CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the
undersigned constitutes and appoints Michael W.
Grieves and Philip M. Goy, and each of them, his true
and lawful attorneys-in-fact and agents, with full
power of substitution, and resubstitution for him and
in his name, place and stead, in any and all
capacities, to sign any and all amendments to a
certain Registration Statement on Form S-3 to be filed
by Data Systems Network Corporation, and to file the
same with the Securities and Exchange Commission,
granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and
perform each and every act and thing requisite and
necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully
do or or cause to be done by virtue hereof.
Dated: February 28, 1997
Jerry A. Dusa
- ---------------
Jerry A. Dusa