<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended September 30, 1995 OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _________ to _________
Commission File Number 0-14204
DATA NATIONAL CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
Colorado 84-0958983
________________________________ __________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11365 West, I-70 Frontage Road-North
Wheat Ridge, Colorado 80033
________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 431-1933
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No X .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[ ]
Issuer's revenues for the fiscal year ended September 30, 1995 were
$2,369,096.
As of September 30, 1995, the aggregate market value of the common stock of
the Registrant held by non-affiliates was undeterminable at that time due
to a lack of any consistent trading market for the Registrant's shares.
As of September 30, 1995, there were 327,478,340 shares of the Registrant's
$.0001 par value common stock outstanding.
<PAGE>
INDEX
PAGE
PART 1
ITEM 1. DISCRIPTION OF BUSINESS
a) Business Developement 2
b) Business of Issuer 3-6
ITEM 2. DISCRIPTION OF PROPERTY 6
ITEM 3. LEGAL PROCEEDINGS 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6
PART 2
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
a) Market Information 6
b) Holders 6
c) Dividends 6
ITEM 6. MANAGMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 7-8
ITEM 7. FINANCIAL STATEMENTS
a) Letter to the Stockholders and Board of Directors 9
b) Consolidated Balance Sheets 10
c) Consolidated Income Statements 11
d) Statement of Changes in Stockholders Equity 12
e) Statement of Cash Flows 13
f) Notes to Consolidated Financial Statements 14-20
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACOUNTING AND FINANCIAL DISCLOSURE 21
PART 3
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS 21-23
ITEM 10. EXECUTIVE COMPENSATION 24-25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGMENT 26
ITEM 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS 26-27
SIGNATURES 28
<PAGE>
PART 1
Item 1. Description of Business
________________________________
(a) Business Development.
Data National Corporation (the Company) was formed under the laws
of the State of Colorado in November 1982. On March 23, 1987, the
Company acquired through an exchange of shares 97.8% of the
outstanding shares of Data National Inc. (DNI), which resulted in a
complete change in control of the Company. In June 1986, DNI
acquired, through an exchange of its common stock, 100% of the
outstanding common stock of Service Business Systems, Inc. (SBS) and
National COM-LINK Systems, Inc. (COM-LINK). The Company acts as a
holding company for these subsidiaries and coordinates their
activities.
SBS is the only active entity, although during 1994, COM-LINK
received royalties from licensing a trademarked name.
(b) Business of Issuer.
Principal Products and Services
The Company derives revenue from products and services provided by
its subsidiary, SBS. SBS markets and sells the Autotrac system to
the service stations of major oil companies, auto repair facilities
that specialize in tire sales, quick-lube facilities, tune-up
facilities, and independent repair facilities that are members of
national groups (subscribers). The Autotrac system is designed to
increase repeat business to such subscribers through the mailing of
postcards to customers thanking them for the business, reminding them
that it is time for regular servicing (such as a tune-up or oil
change), or reminding customers that certain parts need to be
replaced for safety reasons (e.g., brakes, tires, or shocks). To
utilize the services provided by SBS, participating subscribers send
SBS copies of their repair orders that include information about a
specific customer, their vehicle, and the services performed at the
repair facility. SBS extracts certain information and enters it into
a computer database. Each subscriber then selects when and what
types of cards are to be sent, and reminder cards are produced and
mailed directly to the subscriber's customers. The subscriber also
selects the messages to be printed on the cards, the promotions
and/or specials to be offered, etc. The subscriber can update or
change the messages, as desired.
As an integral part of the reminder system, SBS provides
subscribers with monthly management reports detailing information
concerning customers served and services performed, a customer zip
code analysis of new versus repeat customers, and other information
based on the data collected by SBS from the repair orders submitted
by the subscriber.
<PAGE>
SBS also markets and sells products that utilize information
regarding the customer of the facility that uses Autotrac. The
products are as follows:
1. Greeting Cards. Using the subscriber's database, SBS mails
holiday greeting cards to customers of the subscriber.
2. New Residence. SBS mails promotional material to individuals
who have moved into the subscriber's market area.
3. Cashier Handout. SBS produces point-of-sale coupons that can
be used to increase the repair business of the subscriber.
4. Customer Surveys. SBS sends survey cards to the facility's
customers and reports the results of the survey to the subscriber.
The key to the services provided by SBS is being able to utilize
the existing customer database of the subscriber.
SBS also derives revenue from providing creative services to the
subscriber.
The Company is expanding their customer base in fiscal 1996, and
has contracted with a commonly controlled auto dealerships and a
mortgage loan origination company to provide marketing services. The
Company will focus its efforts on expansion of new markets and their
existing customer base.
Employees
SBS employs all of the employees of the Company. As of
September 30, 1995, SBS had 21 full-time employees working in the
office of the Company. In addition, SBS has approximately
20 employees for coding and inputting the information received from
repair facilities into the SBS computer system, some of whom are part-
time. These employees are home based.
Status of Products
The Autotrac system requires customer information to be input into
the database maintained by SBS. The information is either input by
the SBS home-based computer operators or downloaded directly from the
subscriber's computer. The information is processed by the
computer, and the database for the customer is updated. Notices are
printed and mailed to the customers in the database. The Autotrac
system uses a Novell network that includes PC equipment. The system
also includes three production printers. In addition, SBS has
numerous PC work stations for use by the account executives and data
entry personnel. Management of SBS believes this equipment,
supplemented by additions in fiscal 1996 estimated at $75,000, will
permit SBS to handle all of its present and foreseeable data
processing needs through September 30, 1996.
<PAGE>
Sources and Availability of Raw Materials
The Company has experienced no significant difficulty with the
delivery and availability of supplies that it sells to its customers,
and no difficulty is forecast for the immediate future.
Patents, Licenses, Franchises, Concessions, Etc.
The Company has no patent protection for its existing products that
the Company considers to be proprietary items. Except in unusual
circumstances, which do not apply to the Company, computer software
is generally not patentable, but is protected by copyright and trade
secret laws, as well as contractual and nondisclosure provisions of
the Company's licensing agreements.
Seasonality
SBS produces holiday greeting cards in November and December. For
the year ended September 30, 1995, SBS received revenues of
approximately $228,000 as a result of the holiday greeting card
program. There is no other seasonal factor to the Company's
business.
Dependence Upon Small Number of Customers
The business of SBS is very dependent upon a few major customers;
the loss of any one or more of these customers could have a
materially adverse effect on the business and operations of the
Company. During the fiscal year ended September 30, 1995, major
customers represented approximately the following proportion of the
SBS gross revenues:
Company A - 40.1%
Company B - 18.1%
Company C - 12.2%
Competition
SBS has approximately 20 competitors that compete directly with
them in the automotive aftermarket business. Most of the competitors
are small companies like SBS with none of them having a market share
of more than 20%. However, the largest competitor is Moore/BCS, a
division of Moore Business Forms in Toronto, Canada, a billion dollar
conglomerate. Mailmark, Inc., based in Canoga Park, California, is a
direct marketing/data processing company, which provides a
specialized service reminder/customer contact program for the
automotive industry. Other companies like Reynolds and Reynolds,
Brandt Contact Services, Computer Care, and InteliMail are known
competitors.
A competitive analysis suggests that there are many potential
entrants in this industry primarily because technology today allows
just about anyone with a computer to enter the business. Suppliers
<PAGE>
to SBS, such as printing companies and direct mail companies could
become competitors if they choose to expand their own channels of
distribution. Repair facilities could also decide that they have all
of the information necessary to do their own marketing and
evaluations.
However, SBS believes that its marketing strategy permits it to
effectively compete with these companies. With economies of scale
and a national account strategy, SBS believes that the service
provided is more cost effective.
Research and Development Expenditures
Although no costs were classified as research and development
during each of the past two fiscal years, the Company expends
considerable effort for software improvements on an annual basis.
Such effort is a necessary element for maintaining the
competitiveness of its software modules, and such costs are recorded
as normal operating expenses.
Governmental Regulation and Compliance
There are no governmental regulations pertinent to operations that
would differ from those applicable to any small manufacturer. There
is no need for government approval of the Company's products. Any
costs or effects of compliance with environmental laws are de
minimis.
Item 2. Description of Property
________________________________
The Company occupies office space under two 3-year leases that
expire in April 1997 and require an aggregate monthly payment of
$2,800.
Item 3. Legal Proceedings
__________________________
In October 1993, a corporation filed suit against the Company and
others in the United States District Court for Northern District of
Texas, alleging copyright infringement, unfair competition, and
misappropriation of trade secrets. Basically, it has been alleged
that certain computer programs formerly marketed by the Company
infringed on the plaintiff's copyright, through the use of software
developed by another defendant who had formerly worked for the
plaintiff. The plaintiff requested actual and punitive damages in
excess of $5,000,000.
On November 6, 1995, the Court granted the Company's motion for
summary judgement on the statute of limitations and dismissed the
case with prejudice. However, the plaintiff has moved to reconsider,
and the time for appeal has not expired. Accordingly, there is still
the possibility of an adverse verdict.
<PAGE>
In December 1995, the Company's former president (president in 1994
and part of 1995) sued the Company for $36,000 relating to alleged
unreimbursed moving expenses and $18,000 in damages. In 1994, the
Company and the former president verbally agreed the Company would
pay him up to $36,000 in shares of the company's common stock as a
reimbursement for certain moving expenses. The Company was to
determine the number of shares and the former president was to
provide proper documentation of the expenses. The stock was never
issued, and in February, 1995, the former president informed the
Company that he did not want the stock as there was no market for the
stock. In June of 1995, the Company offered to pay this amount in
cash in return for certain releases regarding the departure of the
former president. The Company was also under the impression that the
former president had executed various covenants as a condition of his
employment. The Company determined the covenants had not been
executed and demanded their execution as a condition of the payment.
The former president refused to sign the release and the covenants,
and in December 1995 sued the Company for $36,000 and $18,000 in
damages. Management has accrued $36,000 at September 30, 1993 to
recognize the estimated liability, and believes that settlement of
the claim will not be material to the accompanying financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders
____________________________________________________________
No matter was submitted during the fourth quarter of the fiscal
year ended September 30, 1995 to a vote of security holders, through
the solicitation of proxies or otherwise.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
_____________________________________________________________________
(a) Market Information.
The Company's common stock has not been traded on the over-the-
counter market. Because of the lack of any viable trading market for
the Company's securities, no accurate market information is currently
available.
(b) Holders.
The number of holders of record of the Company's $.0001 par value
common stock at September 30, 1995, was approximately 1,332.
(c) Dividends.
Holders of common stock are entitled to receive such dividends as
may be declared by the Company's Board of Directors. No dividends
have been paid with respect to the Company's common stock and no
dividends are anticipated to be paid in the foreseeable future.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
_________________________________________________________________
Management's Discussion and Analysis of Financial Condition and
Results of Operations
September 30, 1995 as Compared to September 30, 1994
The Company's working capital increased from $132,331 at September
30, 1994, to $173,347 at September 30, 1995. Cash flow from
operations amounted to $80,389 in 1995, as a result of net income of
$87,487. Included in the net cash flow from operations was a
settlement payment with the State of Colorado Department of Revenue
of $37,600, which was substantially offset by a non-cash charge for
depreciation of $32,280. $63,035 was used to acquire additional
equipment, primarily computers, and $11,102 was used to repay capital
leases.
The Company is not obligated by contract for additional capital
expenditures at September 30, 1995, but may be expected to continue
to upgrade its systems, given the nature of its business. Management
estimates capital expenditures of up to $75,000 in fiscal 1996.
The Company remains dependent upon the Dillon note for financing,
and almost certainly would cease operations if the note were deemed
in default and called for payment or not refinanced. The maturity
date is presently extended to October 1, 1997.
As disclosed in the financial statements, the Company was named as
a defendant, along with other parties, in a lawsuit filed in October
1993 in which the plaintiff requested actual and punitive damages in
excess of $5,000,000. On November 6, 1995, the court granted the
Company's motion for summary judgement on the statute of limitations
and dismissed the case with prejudice. However, the plaintiff has
moved to reconsider, and the time for appeal has not expired.
Accordingly, there is still the possibility of an adverse verdict.
The Company believes that favorable operating results will continue
and provide adequate liquidity for the near-term future.
Results of Operations
1995 Compared to 1994
For the year ended September 30, 1995, the nature of the Company's
operations was unchanged and focused on providing marketing services
to repair facilities and similar entities, nationally. One major
customer accounted for 40.1% of net sales in 1995, as compared to 41%
in 1994, and loss of this customer would have a materially adverse
<PAGE>
effect, including possible cessation of operations. Another customer
accounted for 18.1% of net sales in 1995, as compared to 12.2% in
1994. One other group of customers, affiliated with a national oil
company, has been aggregated and constituted 12.2% of net sales in
1995 but did not exceed 10% in 1994. However, this group of
customers is not subject to the same contractual relationship as the
other two major customers discussed above and presumably subjects the
Company to less risk through potential loss of the contract.
Sales were practically unchanged in 1995 as compared to 1994. Cost
of sales increased from 51% of sales in 1994 to 53% in 1995,
primarily because production salaries increased by approximately
$45,000 as new positions were created. The other components of cost
of sales (postage and card inventory) remained stable as a percentage
of sales (22.1% in 1995 and 1994 for postage, and 6.8% versus 7.1% in
1995 and 1994, respectively, for materials).
Selling and marketing expenses decreased by $55,682, or 13.2%, in
1995. The decrease resulted primarily from the elimination of
certain consulting fees, approximately $18,000 to an independent
party and $12,000 to a member of the Board of Directors. Such
services are now provided by Company staff. Other changes that
resulted in cost reduction included not attending trade shows of two
major customers, which occur biannually, and termination of
employment of the Company president in July, which reduced travel and
related expenses.
General and administrative expenses increased by $36,694, or 6.8%,
in 1995. Executive salaries increased approximately $14,200 because
of a raise for the former president and employment of a Chief
Operating Officer in July 1995. Administrative salaries also
increased by approximately $10,500, a result of raises for existing
employees and employment of additional clerical staff. There were no
other significant changes in individual expense accounts.
Interest expense is substantially all related to the Dillon note,
as described above, and is expected to remain a significant cost in
the near future.
<PAGE>
Item 7. Financial Statements
_____________________________
To the Stockholders and Board of Directors
Data National Corporation
I have audited the consolidated balance sheets of Data
National Corporation and subsidiaries as of September 30,
1995 and September 30, 1994, and the related consolidated
statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial
statements are the responsibility of the Company's
management. My responsibility is to express an opinion on
these financial statements based on my audits.
I conducted my audits in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Data National Corporation and
subsidiaries as of September 30, 1995 and 1994, and the
consolidated results of their operations and their
consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Littleton, Colorado
January 10, 1996
<PAGE>
DATA NATIONAL CORPORATION
Consolidated Balance Sheets
September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
________ ________
Assets
<S> <C> <C>
Current Assets:
Cash and equivalents............................. $ 91,359 $ 84,245
Receivables:
Trade less allowance for bad debts of $5,077... 244,932 245,221
in 1995 and 1994, respectively
Other............................................. 5,989 15,134
Inventory, at cost................................. 47,692 41,568
Prepaid expenses.................................... 4,633 7,843
_______ _______
Total current assets.......................... 394,605 394,011
Property and equipment, at cost..................... 431,141 368,106
Less: Accumulated depreciation.................... (319,137) (286,856)
_________ _________
112,004 81,250
_________ _________
Other assets.......................................... 9,696 2,888
_________ _________
$516,305 $478,149
_________ _________
_________ _________
Liabilities and Stockholders' Deficit
Current Liabilities:
Deferred revenue................................. $132,478 $127,977
Accounts payable................................... 61,778 64,475
Accrued expenses................................... 20,070 60,967
Current portion - capital leases.................... 6,932 8,261
________ ________
Total current liabilities..................... 221,258 261,680
________ ________
Note payable-related party.......................... 869,072 868,208
Capital leases, net of current portion.................. 753 10,526
Stockholders' Deficit
Common stock $.0001 par value, authorized
600,000,000 shares; 327,478,340 shares
issued and outstanding............................. 32,747 32,747
Accumulated deficit.............................. (607,525) (695,012)
_________ _________
(574,778) (662,265)
_________ _________
$516,305 $478,149
_________ _________
_________ _________
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DATA NATIONAL CORPORATION
Consolidated Income Statements
Years Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
________ _______
<S> <C> <C>
Net sales..................................... $2,369,096 $2,369,435
Cost of sales.................................. 1,256,193 1,216,457
__________ __________
Gross profit............................... 1,112,903 1,152,978
Selling and marketing expense.................... 366,290 421,972
General and administrative expense............... 575,808 530,614
__________ _________
Operating income............................. 170,805 200,392
Other income (expense):
Interest and other income........................ 5,824 4,927
Interest expense, primarily related party...... (88,793) (95,284)
Other expense..................................... (349) -
___________ _________
(83,318) (90,357)
___________ _________
Net income.................................. $ 87,487 $110,035
___________ _________
___________ _________
Net income per share........................... - -
Weighted average shares outstanding........... 327,478,340 327,478, 340
___________ ____________
___________ ____________
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DATA NATIONAL CORPORATION
Consolidated Statement of Changes in Stockholders' Equity
Years Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
Accumulated
Shares Amount Deficit
<S> <C> <C> <C>
Balance, October 1, 1993....... 327,478,340 $32,747 $(805,047)
Net income..................... - - 110,035
Balance, September 30, 1994.... 327,478,340 32,747 (695,012)
Net income..................... - - 87,487
Balance, September 30, 1995.... 327,478,340 $32,747 $(607,525)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DATA NATIONAL CORPORATION
Consolidated Statements of Cash Flows
Years Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
________ ________
<S> <C> <C>
Cash flow from (used in) operating activities
Net income......................................... $87,487 $110,035
Adjustments to reconcile net income to cash flow
from operating activities:
Depreciation........................................ 32,280 32,932
Changes in assets and liabilities:
(Increase) decrease in receivables............... 9,434 (131,434)
(Increase) decrease in inventory................ (6,124) 4,219
(Increase) decrease in prepaid expenses......... 3,210 (5,258)
(Increase) decrease in other assets............. (6,808) (2,738)
Increase (decrease) in accounts payable........ (2,697) 7,638
Increase (decrease) in accrued expenses....... (40,896) (38,999)
Increase in deferred revenue..................... 4,501 6,601
________ _________
Total adjustments............................... (7,100) (127,039)
________ _________
Cash flow from (used in) operating activities.. 80,389 (17,004)
Cash flow (used in) investing activities:
Purchases of property and equipment................. (63,035) (33,236)
Cash flow from (used in) financing activities:
Borrowings - related party.............................. 864 -
Repayment of related party note......................... - (49,218)
Repayment of capital leases......................... (11,102) (16,552)
_________ _________
Cash flow (used in) financing activities............ (10,238) (65,770)
Increase (decrease) in cash and equivalents.......... 7,114 (116,010)
Cash and equivalents, beginning of year.............. 84,245 200,255
________ _________
Cash and equivalents, end of year................... $91,359 $84,245
________ _________
________ _________
Supplemental information:
Income taxes paid................................. - -
Interest paid..................................... $87,929 $93,329
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DATA NATIONAL CORPORATION
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
(1) Organization, Operations, and Significant Accounting
Policies
Organization and Operations
Data National Corporation (DNC) was incorporated under the
laws of the State of Colorado on November 5, 1982.
On March 23, 1987, and in a subsequent exchange, DNC
acquired 97.8% of the outstanding common stock of Data
National, Inc. (DNI) in exchange for 168,688,240 shares of
DNC's common stock, plus warrants to certain shareholders of
DNI. The combination of the two companies was accounted for
as a recapitalization, with DNI considered as the acquiring
company (although DNC itself is the surviving corporation).
On June 2, 1986, DNI acquired 100% of the outstanding common
stock of Service Business Systems (SBS) and National Com-
Link Systems, Inc. (Com-Link) by exchanging 1,050,000 shares
of its common stock. The combination of these companies was
accounted for as a pooling of interests.
The Company derives revenue from products and services
provided by its subsidiary, SBS, which is the only operating
subsidiary. SBS markets and sells the Autotrac system to
the service stations of major oil companies, auto repair
facilities that specialize in tire sales, quick-lube
facilities, tune-up facilities, and independent repair
facilities that are members of national groups. The
Autotrac system is designed to increase repeat business to
such facilities through the mailing of postcards to
customers thanking them for their business, reminding them
that it is time for regular servicing (such as a tune-up or
oil change), or reminding customers that certain parts need
to be replaced for safety reasons (e.g., brakes, tires, or
shocks).
As an integral part of the system, SBS provides the repair
facilities with monthly management reports detailing
information concerning customers served and services
performed, a customer zip code analysis, new versus repeat
customers, and other information based on the data collected
by SBS from the repair orders submitted by the facility.
SBS also markets and sells products that utilize information
regarding the customer and/or auto repair facility that uses
Autotrac. The products are as follows:
1. Using the facility's database, SBS mails holiday
greeting cards to customers of the facility.
2. SBS mails promotional material to individuals who
have moved into the facility's market.
3. SBS produces point-of-sale coupons that can be
used to increase the repair business of the facility.
4. SBS sends survey cards to the facility's customers
and reports the results of the survey to the facility.
<PAGE>
SBS also derives revenue from providing creative services to
the facilities.
Principles of Consolidation
The consolidated financial statements include the accounts
of DNC, DNI, SBS, and Com-Link (collectively, the Company).
All material intercompany accounts and transactions are
eliminated in consolidation.
Revenue and Credit Risk
Revenue is recognized upon production and shipping of
products.
Sales are substantially made by extending credit to
customers on a short-term basis, using informal credit
evaluations, and are on an uncollateralized basis. See Note
5 for disclosure of major customers for further information
on credit risk.
Inventory
Inventory consists of unprinted card stock, and is carried
at cost determined on a first-in-first-out basis.
Property and Equipment
Property and equipment are stated at cost, and are
depreciated over useful lines of from 5 to 7 years primarily
using the straight-line method. A summary of property and
equipment at September 30, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
________ ________
<S> <C> <C>
Furniture and fixtures $ 13,584 $ 11,984
Office equipment 66,535 58,587
Production equipment 340,964 287,477
Vehicles 10,058 10,058
________ ________
$431,141 $368,106
Cash Equivalents
The Company considers investments with an original maturity
of three months or less to be cash equivalents.
<PAGE>
Net Earnings Per Share of Common Stock
Net earnings per share has been computed based on the
weighted average number of common shares outstanding during
the year. Warrants will be considered when the Company's
stock is actively traded and the market price exceeds the
exercise price.
Income Taxes
The Company adopted Statement of Financial Accounting
Standards 109 in the year ended September 30, 1994.
However, because of the large net operating loss available,
the effect of this accounting change was nil because of the
uncertainty regarding its realization. Accordingly, an
allowance that offsets the estimated tax benefit of
$260,000 and $286,000 at December 31, 1995 and 1994,
respectively, has been provided.
The amount of the net operating loss carry forward and its
expiration is as follows:
</TABLE>
<TABLE>
<CAPTION>
Expiration Amount
____________ ________
<S> <C>
1999 43,000
2000 208,000
2001 87,000
2002 11,000
2003 501,000
2004 432,000
2005 399,000
__________
$1,681,000
__________
__________
</TABLE>
This amount may be further limited by separate return year
limitations for the years 1984 to 1987, which aggregate
$437,000 and would reduce the carry forwards with
expirations from 1999 to 2002.
Deferred Revenue
Prepayments for products are recorded as deferred revenue
until the product is delivered.
Advertising
The Company expenses advertising costs when incurred. Such
costs amounted to $6,001 and $13,385 in 1995 and 1994,
respectively.
<PAGE>
Reclassification of Accounts
Certain depreciation in the amount of $28,000 has been
reclassified from general and administrative expense to
cost of sales in 1994 to conform with the presentation for
the current year.
Use of Estimates
Preparation of financial statements in accordance with
generally accepted accounting principles requires the use
of estimates.
(2) Related Party Transactions
The Company refinanced certain existing indebtedness to two
individuals (father and son), considered collectively in
the note, in October 1991. One of the two individuals is
now Chairman of the Board of Directors and owns or controls
104,793,403 shares of the Company's common stock. The
principal amount of the note is $869,072, with interest at
10%, originally due on or before October 1, 1996, including
$182,441 in accrued interest from prior indebtedness. The
note is secured by inventory; trade receivables; the right
to the name, "Data National Corporation," and related
trademarks, licensing agreements, patents, and similar
rights; bank accounts; and the stock of DNI and all of its
subsidiary corporations.
In conjunction with the refinancing, the two individuals
also received warrants to purchase 64,000,000 shares of the
common stock of Data National Corporation. The warrants
are exercisable on or before September 30, 1996, at a
purchase price of $.0005 per share.
On January 10, 1996, the Note was extended to mature on
October 1, 1997.
The two individuals have entered into an agreement with the
(then) president (now chief financial officer) whereby, in
consideration for him becoming president, they sold to him
certain shares of stock, agreed to pay him 10% of any
principal paid to them (i.e., the original principal of
$737,000 referred to above), agreed to pay him 50% of
interest payments collected by them, and assigned the
warrants to purchase 64,000,000 shares of common stock to
him. There have not been any (original) principal
repayments to date. Interest expense amounted to $86,860,
and $91,358, in 1995 and 1994, respectively.
A member of the Board of Directors received $3,000 per
month in 1994 and for 8 months in 1995 for consulting
services. Additionally, a company that he controls was
indebted to the Company in the amount of $2,924 at
September 30, 1995 and 1994 for certain health insurance
premiums. At September 30, 1995, the Company was indebted
to this individual for $3,000.
The son of the chief financial officer leases equipment to
the Company under three capital leases, which are
summarized in Note 3.
<PAGE>
(3) Capital Leases
The Company leases various equipment under capital leases.
Following is a summary of minimum lease payments required
under capital leases as of September 30, 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 $7,554
1997 939
Less: intrest (838)
______
$7,685
</TABLE>
Assets held under capital leases are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
________ ________
<S> <C> <C>
Assets at cost................................... $ 20,758 $ 65,394
Less: accumulated depreciation........... (4,448) (27,015)
________ ________
$ 16,310 $ 38,379
________ ________
________ ________
</TABLE>
A summary of capital leases follows:
<TABLE>
<CAPTION>
1995 1994
_________ ________
<S> <C> <C>
Monthly payment of $444, interest at 18.5%,
due in March 1995.................................. $ - $ 2,523
Monthly payment of $251, interest at 14.1%,
due in April 1995................................... - 1,533
Monthly payment of $174 (final payment of $591) to
related party, interest at 14%, due in November 1996... 2,590 4,175
Monthly payment of $233 (final payment of $1,186) to
related party, interest at 14%, due in August 1996...... 3,230 5,239
Monthly payment of $285 (final payment of $240) to
related party, interest at 14%, due in April 1996....... 1,865 5,319
Less: current portion................................. (6,932) (8,261)
_______ ________
$753 $10,526
________ ________
________ ________
</TABLE>
Amortization of capital leases is included in depreciation expense.
<PAGE>
(4) Commitments
Office Lease
The Company occupies office space under two 3-year leases
that expire in April 1997 and require monthly payments of
$2,800. Following is a summary of future rental commitments
under these leases:
<TABLE>
<CAPTION>
<S> <C>
1996 $33,600
1997 $19,600
</TABLE>
Rent expenses and related charges amounted to $33,600 and
$34,900 in 1995 and 1994, respectively.
Incentive Plans
In July 1994, the Company adopted an Employee Incentive
Plan, which provides for a contribution to the Plan of 5% of
quarterly sales in excess of $480,000. For the quarters
ended September 30, 1995 and 1994, this contribution
amounted to $1,424 and $1,422, respectively, and has been
accrued in the accompanying balance sheet.
Also in July 1994, the Company adopted an Executive
Compensation Incentive Plan, which provides for a
contribution to the Plan of 20% of quarterly net income in
excess of $75,000. Through September 30, 1995, there were
no contributions due.
Profit-Sharing Plan
In August 1992, the Company adopted a 401-K Profit Sharing
Plan, which covers all employees with one quarter of a
year's service who are at least 21 years old. A participant
may defer a maximum of 15% of compensation to a statutory
limit, and the Company matches the first 5% of the deferral.
In 1995 and 1994, such contributions amounted to $1,433 and
$1,300, respectively.
(5) Major Customers
The following customers each accounted for more than 10% of
sales in 1995 or 1994:
<TABLE>
<CAPTION>
% of Sales
______________
Customer 1995 1994
________ _____ ______
<S> <C> <C>
A 40.1 41
B 18.1 12.2
C 12.2 _
</TABLE>
<PAGE>
(6) Subsequent Events
Litigation
In October 1993, a corporation filed suit against the
Company and others in the United States District Court for
Northern District of Texas, alleging copyright infringement,
unfair competition, and misappropriation of trade secrets.
Basically, it has been alleged that certain computer
programs formerly marketed by the Company infringed on the
plaintiff's copyright, through the use of software developed
by another defendant who had formerly worked for the
plaintiff. The plaintiff requested actual and punitive
damages in excess of $5,000,000.
On November 6, 1995, the Court granted the Company's motion
for summary judgement on the statute of limitations and
dismissed the case with prejudice. However, the plaintiff
has moved to reconsider, and the time for appeal has not
expired. Accordingly, there is still the possibility of an
adverse verdict.
In 1994, the Company and its former president (who was at
that time president) verbally agreed that the Company would
pay him up to $36,000 in shares of the Company's common
stock as reimbursement for certain moving expenses upon
proper documentation of the expenses. The stock was never
issued, and in February 1995, the former president informed
the Company that he did not want the stock as there was no
market for it. In June 1995, the Company offered to pay
this amount in cash in return for certain releases and
covenants and documentation of the claimed expenses. The
former president refused to sign the releases and covenants,
and in December 1995 sued the Company for $36,000 and
$18,000 in damages. Management accrued $36,000 at
September 30, 1993 to recognize the estimated liability, and
believes that settlement of the claim will not be material
to the accompanying financial statements.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
_________________________________________________________________
In June 1994, the Company reported a change in its
independent accountant. The firm of Miller and McCollom had
performed the last audit of the Company's financial statements as
of September 30, 1989, and for the year then ended. There were
no reportable disagreements with that firm, and its report for
1989 was qualified regarding the Company's ability to continue as
a going concern.
The Company engaged the firm of William G. Lajoie, P.C., to
audit its financial statements for the years ending September 30,
1993, 1994, and 1995.
These actions were approved by the Company's Board of
Directors.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act of the Company
___________________________________________________________________________
The Directors and Officers of the Company at September 30,
1995, are as follows:
<TABLE>
<CAPTION>
Name Age Position
________________ _____ ___________________________
<S> <C> <C>
Richard Simms 45 Chief Financial Officer, Director, Treasurer
Ray E. Dillon III 42 Director and Chairman of the Board
Donald Warriner 45 Chief Executive Officer, President
and Director
</TABLE>
There is no family relationship between any director,
executive officer, or person nominated or chosen by the Company
to become a director or executive officer. All directors will
hold office until the next annual meeting of shareholders. There
are no arrangements or understandings between any director of the
Company or any other person or persons pursuant to which such
director was or is to be selected as a director.
The Board of Directors held two meetings during the past
fiscal year, and all of the members then on the Board were
present at all of the meetings. There were no meetings of any of
the committees of the Board of Directors during the past fiscal
year.
All officers of the Company hold office at the discretion of
the Board of Directors. Except as set forth herein, there is no
arrangement or understanding between any such officer or any
other person pursuant to which such officer is to be selected as
an officer of the Company. There is no person who is not a
designated officer who is expected to make any significant
contribution to the business of the Company.
The following sets forth biographical information as to the
business experience of each officer and director of the Company.
Richard Simms is the Vice President of Finance of the
Company. He was President and Chief Executive Officer of the
Company from October 1990 to July 1993. He has been a Director
of the Company since March 23, 1987, and of DNI since its
inception. Since 1986, he has practiced as a certified public
accountant and an independent financial advisor. Mr. Simms is a
CPA registered in Colorado. Mr. Simms devotes part of his time
to the business of the Company and its subsidiaries.
<PAGE>
Ray E. Dillon III has been a Director of the Company since
March 23, 1987, and of DNI since its inception. He is Vice
President of Dillon Investments, a private trust management
company for the Dillon family, where he has been employed since
1985. Mr. Dillon devotes only such time to the business of the
Company as is necessary in his position.
Donald V. Warriner is President and CEO of the Company as of
August 1995. Prior to joining the Company, Mr. Warriner was
employed by Cherry Creek Mortgage Company. Prior to working for
Cherry Creek, Mr. Warriner was President of Bainbridge
International, a company that was involved in acquisitions and
buy outs of small- to medium-sized firms. Mr. Warriner devotes
all of his time to the business of the Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 does
not require any of the Company's officers, directors or persons
who own more than ten percent of the Company's equity securities
to file any reports of ownership or changes in ownership with the
Securities and Exchange Commission because the Company does not
currently have any class of securities registered under Section
12 of that Act.
<PAGE>
Item 10. Executive Compensation
________________________________
The following table sets forth the compensation paid or
accrued to the Chief Executive Officer and each executive officer
of the Company and its subsidiaries who received compensation in
excess of $100,000 during the fiscal year ended September 30,
1995 and 1994:
<TABLE>
<CAPTION>
Summary Compensation
Annual Compensation1 Long-Term Compensation
____________________ ______________________
Awards Payouts
_________________ ________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
______________________________________________________________________________
William 1995 75,000 -0- -- 2 -- -0- $3,766
Eyerdom, CEO (3)
William 1994 85,000 -0- -- __ -- -0- $6,156
Eyerdom, CEO (3)
Donald 1995 13,000 -0- -- __ - -0- --
Warriner, CEO
</TABLE>
________________________________
(1) There were no executive officers whose compensation exceeded
$100,000 in either 1994 or 1995.
(2) As described earlier, Mr. Eyerdom was offered certain
restricted stock as reimbursement for moving expenses
incurred in 1993. However, such stock was refused and the
payment of the expenses is the subject of litigation filed
in December of 1995 and more adequately explained under Item
3.
(3) Represents the value of a leased automobile and
reimbursement of gas and certain maintenance charges.
<PAGE>
The following table shows certain information with respect
to stock options granted to the Company's executive officers
during the fiscal year ended 1995:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
____________________________________________________________________
<S> <C> <C> <C> <C>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
_____________________________________________________________________________
William Eyerdom -0- N/A N/A N/A
Donald V. Warriner -0- N/A N/A N/A
</TABLE>
The following table sets forth certain information with respect
to option exercises during the fiscal year ended September 30,
1995 by the executive officers of the Company and the value of
each such officer's unexercised options at September 30, 1995:
Aggregated Option/SAR Exercises in
Last Fiscal Year and Fiscal Year - End Option/SAR Values
<TABLE>
<CAPTION>
___________________________________________________________________________
Value of Unexercised
Shares Number of Securities Underlying in-the-Money
Acquired Unexercised Options/SARs Options/SARs
on Value at Fiscal Year-End(#) at Fiscal Year-End($)
Exercise Realized _____________________ _____________________
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
__________ ___________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
William None None -0- 0 $ -0- 0
Eyerdom
Donald V. None None -0- 0 $ -0- 0
Warriner
</TABLE>
Estimated Future Payouts under Non-Stock
Price-Based Plans
_________________________________________
<TABLE>
<CAPTION>
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation or Threshold Target Maximum
Name Rights(#) Payout ($ or #) ($ or #) ($ or #)
______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
William -0- -0- N/A N/A N/A
Eyerdom
Donald V. -0- -0- N/A N/A N/A
Warriner
</TABLE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management
__________________________________________________________________
The following table sets forth information as of
December 31, 1995, with respect to the beneficial ownership of
the Company's $0.0001 par value common stock by (a) each person
known by the Company to be beneficial owner of 5% or more of the
Company's outstanding Common stock, (b) the directors of the
Company, and (c) the directors and officers of the Company as a
group:
<TABLE>
<CAPTION>
Name and Address Nature of Beneficial Percent
of Beneficial Owner Ownership of Class
_____________________________ ____________________ ________
<S> <C> <C>
Richard Simms 148,996,821(1) 38.06
20 Dutch Creek Drive
Littleton, CO 80123
Ray E. Dillon III 104,793,403(2) 32.0
1 Compound Drive
Hutchinson, KS 67502
All directors and executive 253,790,224 64.83
officers as a group
</TABLE>
(1) Includes warrants to purchase 64,000,000 shares. See Item
11 - Certain Relationships and Related Transactions.
Includes shares owned by the Simms Family Partnership,
controlled by Mr. Simms.
(2) Includes 30,506,959 shares owned by other members of the
Dillon family.
(3) There are no additional officers or directors who own
shares of the Company's common stock, but the Company has
agreed to sell and grant certain employees shares of common
stock.
Item 12. Certain Relationships and Related Transactions
_________________________________________________________
No director and executive officer of the Company, nominee
for election as a director, security holder who is known to the
Company to own of record or beneficially more than 5% of any
class of the Company's voting securities, or any member of the
immediate family of any such persons, has had any transaction or
series of similar transactions, during the Company's last two
fiscal years, or had any currently proposed transaction, or
series of similar transactions, to which the Company was or is to
be a party, in which the amount involved exceeds $60,000 or in
which any of such persons had or will have any direct or indirect
material interest, except as follows:
The Company refinanced certain existing indebtedness to two
individuals (father and son), considered collectively in the note
(the "Dillon note"), in October 1991. One of the two individuals
is now Chairman of the Board of Directors and owns and controls
104,793,403 shares of the Company's common stock. The principal
amount of the note is $737,000, with interest at 10%, and was
originally due on or before October 1, 1996. Additionally, the
Company owed $182,441 in accrued interest from the prior
indebtedness. The note and this accrued interest are secured by
<PAGE>
inventory; trade receivables; the right to the name, "Data
National Corporation," and related trademarks, licensing
agreements, patents, and similar rights; bank accounts; and the
stock of DNI and all of its subsidiary corporations.
In conjunction with the refinancing, the two individuals
also received warrants to purchase 64,000,000 shares of the
common stock of Data National Corporation. The warrants are
exercisable on or before September 30, 1996, at a purchase price
of $.0005 per share.
The two individuals have entered into an agreement with the
(then) president (now chief financial officer) whereby, in
consideration for him becoming president, they sold to him
certain shares of stock, agreed to pay him 10% of any principal
paid to them (i.e., the $737,000 referred to above), agreed to
pay him 50% of interest payments collected by them, and assigned
the warrants to purchase 64,000,000 shares of common stock to
him. There have not been any (original) principal repayments to
date. Interest expense amounted to $86,860, and $91,358, in 1995
and 1994, respectively.
On January 10, 1996, the Dillon note was extended to mature
on October 1, 1997.
The Company has agreed to sell and grant restricted common
stock to the new President and CEO and the new Vice President and
COO (management team). The Company has agreed to sell
approximately 150,000,000 shares of stock of the Company to the
new management team at a price of $.0006 per share. The Company
will grant approximately 50,000,000 shares of common stock to the
new management team. It is anticipated the sale and grant of
shares will take place before January 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
DATA NATIONAL CORPORATION
Registrant
Date: January 12, 1996 By:/s/ Richard Simms
Richard Simms, Chief Financial
Officer, Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date: January 12, 1996 By:/s/ Richard Simms
Richard Simms, Chief Financial
Officer, Director and Treasurer
Date: January 12,1996 By:/s/ Ray E. Dillon
Ray E. Dillon III, Chairman of the
Board and Director
Date: January 12, 1996 By:/s/ Donald Warriner
Donald Warriner, Chief Executive
Officer and Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 91,359
<SECURITIES> 0
<RECEIVABLES> 250,009
<ALLOWANCES> 5,077
<INVENTORY> 47,692
<CURRENT-ASSETS> 394,605
<PP&E> 431,141
<DEPRECIATION> 319,137
<TOTAL-ASSETS> 516,305
<CURRENT-LIABILITIES> 221,258
<BONDS> 0
<COMMON> 327,478,340
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 516,305
<SALES> 2,369,096
<TOTAL-REVENUES> 2,369,096
<CGS> 1,256,193
<TOTAL-COSTS> 2,198,291
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (83,318)
<INCOME-PRETAX> 87,487
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,487
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
