UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-QSB
_____________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended July 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
_____________________
For the Transition Period from to
Commission File Number 1-11034
DIGITRAN SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 72-0861671
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
90 North 100 East, Logan, Utah 84321
(Address of principal executive offices and zip code)
(801) 752-9067
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address, and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 12, 1996
Common stock, $.01 par value 8,282,069
Class B Common stock, $.01 par value 2,000,000
Transitional Small Business Disclosure Format (Check one)
Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet
as of July 31, 1996 1
Unaudited Condensed Consolidated Statements of Operations,
for the three month periods ended July 31, 1996 and 1995 2
Unaudited Condensed Consolidated Statements of Cash Flows,
for the three month periods ended July 31, 1996 and 1995 3
Notes to Unaudited Condensed Consolidated Interim Financial
Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 13
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
July 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 30,939
Accounts receivable 22,763
Note receivable 120,000
Inventories 1,022,653
Costs & Earnings in Excess of Billings 251,078
Prepaids 1,580
Total current assets 1,449,013
NET CAPITALIZED SIMULATOR DEVELOPMENT COSTS 1,064,375
INVESTMENT IN JOINT VENTURE 18,091
LONG TERM NOTE RECEIVABLE 280,000
RENTAL & DEMONSTRATION SYSTEMS (NET) 696,920
NET PROPERTY AND EQUIPMENT 920,784
$4,429,183
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit and current notes payable $ 571,447
Accounts payable 802,831
Current portion of long-term debt 366,495
Other current liabilities 361,095
Total current liabilities 2,101,868
"LONG-TERM OBLIGATIONS, less current maturities" 572,664
COMMITMENTS AND CONTINGENCIES -
Total liabilities 2,674,532
STOCKHOLDERS' EQUITY
Preferred stock 3,717
Common stock 82,821
Class B common stock 20,000
Additional paid-in capital 5,984,102
Retained earnings (deficit) (4,335,989)
Total stockholders' equity 1,754,651
$ 4,429,183
[FN]
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended July 31,
<CAPTION>
1996 1995
<S> <C> <C>
NET SALES $ 390,251 $ 194,578
COST OF GOODS SOLD 553,193 274,136
GROSS PROFIT (162,942) (79,558)
EXPENSES:
Selling, general and administrative
expenses 537,373 433,499
OPERATING INCOME (LOSS) (700,315) (513,057)
OTHER INCOME (EXPENSE)
Interest expense (22,375) (47,679)
Equity in loss from joint venture (28,961) (14,334)
Other income (expense) - 2,300
INCOME (LOSS) BEFORE INCOME TAXES (751,651) (572,770)
INCOME TAXES - -
NET INCOME (LOSS) $ (751,651) $ (572,770)
LESS: CURRENT UNPAID DIVIDENDS ON
CONVERTIBLE PREFERRED STOCK: $ - $ -
NET LOSS APPLICABLE TO COMMON STOCK $ (751,651) $ (572,770)
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ (.07) $ (.06)
WEIGHTED AVERAGE COMMON STOCK AND
COMMON STOCK EQUIVALENTS OUTSTANDING 10,282,069 9,408,383
<FN>
The accompanying notes are an integral part of these financial statements.
2
</TABLE>
<PAGE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(Unaudited)
<CAPTION>
For the Three Months Ended July 31,
1996 1995
<S> <C> <C>
Cash Flows From (To) Operating Activities
Net loss $ (751,651) $ (572,770)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 196,795 164,710
Loss (gain) on disposal of assets - (2,300)
Loss (gain) in equity in joint venture 28,961 14,334
Change in assets and liabilities:
(Increase) decrease in inventory 11,805 (2,289)
(Increase) decrease in costs & earnings
in exess of billings 120,473 -
(Increase) decrease in other current assets 166,471 34,524
Increase (decrease) in current liabilities 125,108 (7,298)
Total adjustments 649,613 201,681
Net cash used by operating
activities (102,038) (371,089)
Cash Flows From Investing Activities:
Purchase of property and equipment (3,827) -
Increase in capitalized simulator development costs (72,125) (7,472)
Proceeds from sale of property and equipment - 2,300
Net cash used in investing
activities (75,952) (5,172)
Cash Flows From (To) Financing Activities
Amounts borrowed under notes payable
and lines of credit 405,000 471,000
Amounts paid on notes payable and lines of credit (175,000) (42,730)
Issuance of long-term obligations 6,000 -
Principal payments on long-term obligations (98,660) (45,062)
Net cash provided by financing
activities 137,340 383,208
Net Increase (Decrease) in Cash and Cash
Equivalents (40,650) 6,947
Cash at Beginning of Period 71,589 18,899
Cash at End of Period $ 30,939 $ 25,846
</TABLE>
[FN]
[Continued]
3
<PAGE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents (cont.)
(Unaudited)
For the Three Months Ended July 31,
<CAPTION>
1996 1995
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid during the three month period for interest 18,188 36,456
Noncash Financing and Investing Activities
Property acquired through issuance of long-
term obligations - -
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all material adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position at July 31, 1996, results of operations and cash flows at
July 31, 1996 and 1995 and for the three month periods presented have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's April 30, 1996 audited
financial statements. The results of operations for the periods ended
July 31, 1996 and 1995 are not necessarily indicative of the operating
results for the respective full years.
The simulator products which are marketed by the Company sell at a very high
price in comparison to the total annual sales of the Company. This
relationship leads to individual sales having a disproportionately large
effect on total sales. Therefore, sales within a quarter can lead to highly
volatile results of operations for individual quarters. The results for
individual quarters may not be indicative of annual results. All quarterly
information should be considered in light of the last fiscal year and the
current year to date operations of the Company.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
Material commitments and contingencies at July 31, 1996 include certain
shareholder litigation and possible going concern considerations as discussed
below.
Shareholder Litigation
On April 1, 1993, the Securities and Exchange Commission (the "Commission" or
"SEC") issued an order directing that an investigation be conducted by the
Salt Lake City office of the Commission to determine whether the Company or
any of its affiliates or any other person has engaged in violations of
certain Federal laws. On May 21, 1993, the Commission issued an order
suspending trading of the Company's securities. On December 29, 1994, a
complaint against the Company was filed in U.S. District Court, District of
Utah, Northern Division by the Securities and Exchange Commission. The
complaint named, as defendants, Digitran Systems, Inc., Donald Gallent (a
former officer and director) and James R. Bryan (a former officer). Mr.
Gallent is no longer associated with the Company. Mr. Bryan has resigned as
an officer and, while still an employee of the Company, is not involved in
financial disclosure. The complaint sited violations of Sections 17(a) of
the Securities Act of 1933, as amended, and Sections 10(b), 13(a) and 13(b)
of the Securities Exchange Act of 1934, as amended, and Rules 10b-5, 12b-20,
13a-1, 13a-13, 13b2-1 and 13b2-2 promulgated thereunder. A Final Judgment
was filed by the Securities and Exchange Commission on September 25, 1995 in
the United States District Court, District of Utah, Northern Division.
[FN]
5
<PAGE>
Without admitting or denying the allegations of the complaint except as to
the jurisdiction of the court, the Company has consented to the Judgment.
The Judgment permanently restrains and enjoins the Company from engaging in
acts and practices which constitute and will constitute violations of all
applicable rules and regulations from the securities acts. There was no
monetary penalty assessed by the SEC in this matter.
In May 1994 a consolidated amended complaint was filed for a proposed Class
Action by Gregory McEwen and Larry Parker, on behalf of themselves and all
those similarly situated, in the United States District Court for the District
of Utah, Salt Lake City Division. The action consolidated two separate
actions filed in August 1993 and February 1994, respectively, against Digitran
Systems, Inc., Digitran, Inc., Donald G. Gallent, Loretta P. Trevers; Chris S.
Coray; Harris G. LeRoy, II; James R. Bryan; and the accounting firm, Grant
Thornton. Included as Plaintiffs was a proposed class consisting of all
persons who purchased securities of Digitran Systems, Incorporated during
the period from March 19, 1992 to May 21, 1993. The Complaint alleges that
the Company published or released false or misleading information relating to
the recognition of income on certain contracts and improperly capitalized
certain simulator development costs. The complaint also alleges that certain
of the defendants engaged in insider trading activities. The complaint seeks
the following relief: 1) declaring the action to be a proper class action;
2) awarding compensatory and punitive damages, including interest and that
such damages be trebled; 3) awarding extraordinary equitable and/or injunctive
relief and 4) awarding costs and expenses, including attorney's fees and
other costs. The court has certified the Plaintiff's class, with the
exception of the Utah Securities Act Claim.
In May 1994 Grant Thornton filed a cross-claim against Digitran Systems,
Incorporated, Digitran, Inc., Donald G. Gallent, Loretta P. Gallent and James
R. Bryan. The cross-claim 1) alleges common law fraud based on activities
relating to the April 30, 1992, 1991 and 1990 financial statements and 2)
seeks contribution under federal securities laws and the Utah Uniform
Securities Act. The cross-claim seeks damages to be established at trial and
indemnification with respect to any judgment that may be entered against
Grant Thornton in this action.
In June 1994 the Company filed a cross-claim against Grant Thornton. The
cross-claim alleges breach of contract and negligence for failure of Grant
Thornton to follow generally accepted auditing standards in the audit of the
Company's financial statements. The cross-claim also seeks contribution
under federal and state securities laws. The cross-claim seeks damages to
be established at trial, indemnification with respect to any judgment that
may be entered against the Company, contribution and consequential damages.
On October 6, 1995, an intervention was filed by a number of shareholders who
purchased securities during the class period, but who purportedly excluded
themselves from the class. The intervention also concerned Shareholders of
the corporation who had owned stock in the corporation for a number of years.
The alleged violations of securities laws mentioned those filed by the class
plaintiffs, as a result of the rising costs associated with the litigation,
the corporation assigned its action against Grant Thornton to the Intervenors
in exchange for the payment of all costs associated with the action against
Grant Thornton and dismissal of all claims by Intervenors against the
corporation. In the event that Intervenors are successful in this matter
[FN]
6
<PAGE>
against Grant Thornton, the corporation shall share equally with the
Intervenors in the recovery, less costs and attorney's fees. As of August
12, 1996, the Intervenors' action was dismissed by the Court against Grant
Thornton, with the exception of the action assigned by the Company against
Grant Thornton, and the actions of all those intervenors who have identical
claims as those set forth by the class plaintiffs.
Discovery in the matter will conclude September 10, 1996 and trial has been
scheduled for September 30, 1996. At this time the amount of damages, if any,
which could be incurred by the Company is uncertain.
In the normal course of business, there may be various other legal actions
and proceedings pending which seek damages against the Company. In the
opinion of management the ultimate resolution of these matters will not have
a material adverse impact upon the Company, its business or property.
Going Concern
The accompanying financial statements have been presented on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is the defendant in
a class action lawsuit with unspecified damages. Should the lawsuit result
in substantial economic cost to the Company, the Company may be unable to
continue in existence. The Company has settled with certain shareholders
based on an issuance of the Company's stock and is continuing to attempt to
find a similar equitable settlement with the remaining shareholder litigants
which would be in the best interests of all parties involved.
The Company has been unable to resume trading and has been denied access to
its traditional lines of credit. However, the Company has been able to
obtain short term borrowings and lines of credit with local government
agencies and a financial institution which have been backed by certain
Company receivables.
During the last three years the Company has relied primarily on cash on hand
from new sales to fund operations. During 1993 and 1994 the Company committed
significant amounts of its cash on hand to finance the build up of
inventories. From late 1993 through December 1994, management had been
required to spend inordinate amounts of time and resources on the critical
matters regarding the SEC investigation and shareholder suit, which are
peripheral to operations. Consequently, management has had difficulty
attracting additional management personnel to assume some of the tasks
created, due to the factors noted above and cash flow constraints. This has
resulted in operational results being diminished from those which otherwise
might be anticipated by the Company. The combination of these factors has
resulted in periods of cash liquidity shortfalls which were funded primarily
by the sales of simulators from inventory, the sale of certain operating
assets, the placing of mortgages on real estate which was previously debt
free, and quasi public institutions and the forbearance of the Company's
vendors in accepting late payments on outstanding invoices. The Company
anticipates that funding for operations in the following quarters will likely
come from sales proceeds.
The Company's continued existence is dependent upon its ability to focus on
operational considerations in order to maintain the growth in sales
opportunities and continue bringing to closure a sufficient number of the
proposals currently outstanding to potential customers. Management plans to
continue focusing its time, attention and financial resources on operational
considerations.
[FN]
7
<PAGE>
If management is unable to achieve expected results due to sales shortfalls
or other unanticipated events, it may be required to obtain equity financing,
reduce operations, refinance significant assets, or undertake other actions
as may be appropriate.
Other Items
In the normal course of business, there may be various other legal actions
and proceedings pending which seek damages against the Company. In the
opinion of management the ultimate resolution of these routine matters will
not have a material adverse impact upon the Company's consolidated financial
statements.
NOTE 3 - CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with oil companies, port
authorities, training institutions and various other entities, often outside
the United States. Normally, the Company attempts to secure shipments
outside the United States through letters of credit and/or progress payments.
The Company currently has a crane simulation training system located in
Kingston, Jamaica subject to a one month lease agreement. The potential
accounting loss on the simulator, if the collateral proved to be of no value
to the Company, would be approximately $240,000, including costs incurred in
attempting to recover the collateral. However, the system is insured for an
amount in excess of the book value of the system and has generated rental
revenues during the past year which have exceeded all direct costs of
utilizing the system for training as well as the depreciation of the system
from its original cost.
In cases for which shipments are made on open accounts, the Company normally
retains title or ownership claims to the equipment shipped by terms of its
contracts or agreements until significant payment has been secured.
NOTE 4 - INVENTORIES
<TABLE>
Inventories consisted of the following at July 31, 1996 and April 30, 1996:
<CAPTION>
July 31 April 30
<S> <C> <C>
Parts and supplies $ 256,785 $ 251,872
Work in process 572,668 568,943
Finished goods 193,200 714,798
$1,022,653 $1,535,613
</TABLE>
NOTE 5 - CAPITAL STOCK
The Company's capital stock consists of common stock, Class B common stock,
and preferred stock. The common stock provides for a noncumulative, $.05 per
share annual dividend and a $.01 per share liquidation preference over Class
[FN]
8
<PAGE>
B common. In addition, the Company must pay the holders of the common stock
a dividend per share at least equal to any dividend paid to the holders of
Class B common. Holders of the common stock are entitled to one-tenth of a
vote for each share held.
Class B common may not receive a dividend until an annual dividend of at least
$.05 is paid on the common stock. Holders of Class B common have preemptive
rights with respect to the Class B common stock and may convert each share of
Class B common into one share of the common stock at any time. Holders of
Class B common are entitled to one vote per share held.
The Series 1 Class A 8% Cumulative Convertible Preferred Stock has a par
value of $.01 per share. As of July 31, 1996 there were 371,695 shares
outstanding. Holders of preferred shares are entitled to cumulative
dividends of 8% per annum on the stated value of the stock, designated as $7
per share. Holders of Preferred Stock are entitled to receive cumulative
dividends at the annual rate of $.56 per share, payable semi-annually on
September 15 and March 15, beginning September 15, 1992. As part of a
settlement with intervenor preferred stock shareholders 86,155 preferred
shares were consented to be converted to three shares of Common Stock
reducing dividends in arrears by $144,740 and the semi-annual dividend
payment by $24,123. The Company paid dividends of $27,362 for September 15,
1992 and $136,682 for March 15, 1993. No dividends were paid since March 15,
1993 resulting in dividends in arrears of $626,296 after the conversion
referred to above. The future payment of dividends on the Preferred Stock is
dependent on further settlements and also upon the generation of future cash
flow and profit by the Company sufficient to meet such obligations and allow
the Company to pay such dividends under Delaware and Utah corporate law.
There may be legal restrictions on the payment of dividends for periods in
which losses are incurred and/or the Company has an accumulated deficit.
Dividends are not payable on any other class of stock ranking junior to the
preferred stock until the full cumulative dividend requirements of the
preferred stock have been satisfied. The preferred stock carries a
liquidation preference equal to its stated value plus any unpaid dividends.
Subject to certain registration requirements, convertibility of any preferred
stock issued may be exercised at the option of the holder thereof at two
shares of common stock for each preferred share converted. Holders of the
preferred stock are entitled to one tenth of a vote for each share of
preferred stock held. The Company may, at its option, redeem at any time all
shares of the preferred stock or some of them on notice to each holder of
preferred stock at a per share price equal to the stated value ($7.00) plus
all accrued and unpaid dividends thereon (whether or not declared) to the
date fixed for redemption, subject to certain other provisions and
requirements.
[FN]
9
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The Company relied almost exclusively on proceeds from sales and short term
borrowings on sales contracts for operating capital during the first quarter
of 1997. The Company continued to be without access to traditional lines of
credit with the Company's bank or capital markets during the first quarter of
1997, however, the Company was able to rely on alternative lines of credit to
partially fund operations.
The Company has substantially reduced the inventory levels in the past two
years and thus will need to rely almost exclusively on proceeds from sales to
finance the cost of those sales. The ability of management to obtain terms
with customers which will facilitate the payment of the materials for the
simulators during the construction phase will be important in cash
utilization.
Cost and earnings in excess of billings increased to approximately $251,000
from zero in the previous year representing the unbilled portion of sales to
significant customers based on percentage completion. A continued balance
under this caption reflects the Company's shift from sales of completed
systems to systems not in inventory or which require substantial software
customizations for the customer before delivery.
Due to pending terms with potential truck customers the Company anticipated
that there would be significant changes the existing truck simulation system.
The Company has determined that the existing finished truck simulation system
will likely be used as a demonstration unit and/or a rental unit as
customizations are completed for certain truck simulation customers. The
$501,155 cost of the system has therefore been reclassified as a
demonstration/rental system and will be depreciated over the following two
years. This will enable the Company to place the existing system at the
customer's facilities immediately while customizations are made for the
customers. This will help the Company expedite cash inflows by closing on
contracts with customers which could ordinarily be delayed until a customized
system is complete.
Due to the placement of several finished systems during the past year, as
well as the adjustment referred to in the previous paragraph, inventory
levels decreased by over $1,200,000 from the quarter ended July 31, 1995.
The Company capitalized simulator development costs for the quarter ended
July 31, 1996 of $72,125 compared to $7,472 for the quarter ended July 31,
1995. This increase in capitalized simulator development costs reflects an
increase in the number of software engineers as well as the increase in the
number of current software projects which have reached the point of
technological feasibility. These capitalized costs were funded from proceeds
arising from the sale of simulators, as will be the case for such costs
capitalized in the near future.
Accounts payable decreased by approximately $138,000 during the first quarter
of 1997 when compared to the first quarter of 1996. This decrease came about
due in part to payments arising from the collection of customer sales receipts
during the past year and the settlement of old legal and professional fees.
[FN]
10
<PAGE>
The Company anticipates that accounts payable will decline marginally in the
near term; however , may ultimately increase as the level of sales increases.
Accounts payable may also fluctuate with the timing of certain cash receipts.
The Company currently has no material commitments for capital expenditures.
The Company was able to lease certain office space from excess capacity to
others at a reasonable return to the Company.
Cash used by operations for the three months ended July 31, 1996 was
approximately $102,000 while approximately $371,000 was used by operations
during the three months ended July 31, 1995. The amount of cash used by
operations during the current three month period reflects the collection of
simulation system sales receipts during the current period in amounts
exceeding that for the same period in the previous year. The net borrowings
for the current quarter decreased from that of the same quarter last year by
approximately $246,000 which is directly related to the decrease in cash used
by operations for the respective quarters.
Results of Operations
Quarter ended July 31, 1996 vs. quarter ended July 31, 1995
Net sales increased by approximately $129,000 or 67% for the quarter ended
July 31, 1996 over the quarter ended July 31, 1995. Due to the nature of the
Company's product and market, and as a relatively small number of large
individual sales comprise the majority of the Company's revenues, results of
operations for any one quarter may vary significantly from other quarters
based on even a small change in the number of units sold in any given quarter.
Cost of goods sold for the quarter ended July 31, 1996 increased by
approximately $299,000, or 109%, from the quarter ended July 31, 1995. The
increase was due in combination to higher per unit sales cost in the current
quarter relative to the same quarter last year and the beginning of
depreciation of the truck system which was reclassified as a depreciable
asset. The systematic amortization of capitalized software development costs
is also included in cost of goods sold. The software amortization expense
decreased from $129,063 in the first quarter of 1995 to $97,063 in the current
quarter.
Gross profits as a percentage of net sales decreased from -41% in July 31,
1995 to -77% in July 31, 1996. Lower margin sales in the current quarter
versus the same quarter last year as well as the depreciation of the truck
demo system led to the decrease in the profit margin. Due to the fact that
margins inherent in contracts may vary from customer to customer and as
recognition of revenue on significant contracts varies from period to period,
variations of several percentage points between periods can be expected.
Selling, general and administrative expenses increased from $433,499 for the
quarter ended July 31, 1995 to $537,373 for the quarter ended July 31, 1996
which represents a $103,874 or 24% increase. The increase was due in large
part to concerted efforts on management's part to focus more attention on the
marketing effort. Marketing related expenses increased by $38,266 for the
current quarter when to compared to the same quarter in the previous year.
Legal, professional and consulting expenses increased in the current quarter
[FN]
11
<PAGE>
by $30,590 from the same period last year. This increase was due to a slight
increase in audit fees in the current quarter and an increase in legal
expenses related to increased activity with the shareholder suit (See ITEM 1
- - Legal Proceedings). Salary related expenses increased by approximately
$27,000 and commissions and sales agents expense decreased by approximately
$25,000. An increase of $55,614 in other administrative expense was realized
due mainly to the reversal of an estimated SEC penalty which was not assessed.
Offsetting the amounts identified above was a decrease in other taxes expenses.
During the quarter ended July 31, 1995 a sales and use tax assessment was
incurred which represents the majority of the decrease for the quarter ending
July 31, 1996. The majority of the remaining selling, general and
administrative expenses stayed at a relatively stable level for the first
quarter 1997 compared to first quarter 1996.
Interest expense decreased by $23,328 for quarter ended July 31, 1996 from
that of the quarter ended July 31, 1995 due in large part to decreased short-
term borrowings. Interest expense should remain at approximately this level
in the following quarter.
Due to the need for the Company to operate in large part from its own capital
resources, it has been forced to adjust its disbursements relative to
marketing and property and equipment purchases. Management has attempted to
prioritize the expenditures and to maximize the benefits from the expenditures
being made. The current low levels of expenditures on property and equipment
may also lead to inefficiencies within the Company, which would not otherwise
occur, if the current trend continues into the future.
Due to the somewhat lengthy period of time required between the generation of
a sales lead with a potential customer and the completion of a contract with
that customer, results of efforts taken in the past few periods will likely
start to be realized during the next few quarters. Management is encouraged
by the progress made in its sales and marketing efforts.
Management's Plans for Near Term Operations
Management has, through a teaming agreement with Evans and Sutherland,
started the next generation of crane and truck products based on the Evans
and Sutherland Image Generation. The Company has received, and anticipates
receiving, several contracts from customers for upgrades to the new system.
The conversion of many of our software modules to the new system has already
taken place and additional modules will be converted as needed by specific
customers.
The Company has recently hired a new marketing director for the petroleum
market. This market has been aggressively marketed since the first quarter
of 1996 and will be expanded further to upgrade the existing customers,
provide support and maintenance services as well as the sale of new systems.
The petroleum simulator has been upgraded to a windows-based software and
additional upgraded features are currently in development. The dramatic
increase in sales activity in the petroleum product line is exciting and
presents many new challenges to the Company related to fast growth product
lines.
[FN]
12
<PAGE>
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
See "Note 2 - Commitments and Contingencies, Shareholder Litigation".
ITEM 2 Changes in Securities
None
ITEM 3 Defaults on Senior Securities
Holders of Series 1 Class A 8% Cumulative Convertible Preferred Stock are
entitled to receive cumulative dividends at the annual rate of $.56 per share,
payable semi-annually on September 15 and March 15, beginning September 15,
1992. No preferred stock dividends have been paid since September 15, 1993
resulting in aggregate dividends in arrears of $626,295.
ITEM 4 Submission of Matters to a Vote of Security Holders
None
ITEM 5 Other
None
[FN]
13
<PAGE>
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits: Part I
Sequential
S-B Reference Description Page Number
11 Statement Re Computation
of Per Share Earnings 18
(b) Reports on Form 8-K: None
[FN]
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Digitran Systems, Incorporated
Registrant
Dated Sept 13, 1996 By: /s/ Loretta Trevers
(President, Chairman & Chief
Executive Officer)
Dated Sept 13, 1996 By: /s/ Gary B. Peterson
(Chief Financial Officer)
Dated Sept 13, 1996 By: /s/ Steven J Hansen
(Controller)
[FN]
15
<PAGE>
EXHIBIT 11
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three months ended Three months ended
on July 31, 1996 on July 31, 1995
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
<S> <C> <C> <C> <C>
Net Income (loss) $ (751,651) $ (751,651) $ (572,770) $ (572,770)
Less: dividends on convertible
preferred stock $ - $ - $ - $ -
Net Income (loss) applicable to
common stock $ (751,651) $ (751,651) $ (572,770) $ (572,770)
Common Stock:
Shares outstanding from
beginning of period 10,282,069 10,282,069 9,408,383 9,408,383
Weighted average shares
issued during the period - - - -
Weighted average shares
outstanding during the period 10,282,069 10,282,069 9,408,383 9,408,383
Common stock equivalents
computed using the Treasury
Stock method:
$.50 options (1) 120,000 120,000 120,000 120,000
$2.00 options (1) 10,000 10,000 10,000 10,000
Other options (1) (2) 1,255,000 1,255,000 450,000 450,000
Proceeds from exercise (1) $ - $ - $ - $ -
Average price the for period n/a n/a n/a n/a
Shares repurchased - - - -
Net shares outstanding from
options exercised - - - -
Common stock and common stock
equivalents outstanding 10,282,069 10,282,069 9,408,383 9,408,383
Convertible preferred stock
Weighted average equivalent
shares outstanding during
the period 743,390 915,700
All dilutive contingent shares 11,025,459 10,324,083
Earnings per common share and
common share equivalents $ (0.07) $ (0.06)
Earnings per common share--
assuming full dilution n/a n/a
(1) Options would be antidilutive on EPS for both periods due to net losses
in those periods
(2) No FMV available. See April 30, 1996 10-KSB, Note 17 in "ITEM 7 -
FINANCIAL STATEMENTS"
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Digitran
Systems, Incorporated 7/31/96 financial statements qualified in its entirety in
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 472
<ALLOWANCES> 49
<INVENTORY> 1023
<CURRENT-ASSETS> 1449
<PP&E> 1644
<DEPRECIATION> 723
<TOTAL-ASSETS> 4429
<CURRENT-LIABILITIES> 2102
<BONDS> 0
0
4
<COMMON> 103
<OTHER-SE> 1648
<TOTAL-LIABILITY-AND-EQUITY> 4429
<SALES> 390
<TOTAL-REVENUES> 390
<CGS> 553
<TOTAL-COSTS> 553
<OTHER-EXPENSES> 537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> (752)
<INCOME-TAX> 0
<INCOME-CONTINUING> (752)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (752)
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
