<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-KSB
[x] Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended April 30, 1999
[ ] Transition Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934 [No Fee Required]
Commission file Number: 1-11034
DIGITRAN SYSTEMS, INCORPORATED
(Name of small business issuer in its charter)
Delaware 72-0861671
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2176 North Main
P.O. Box 6310
North Logan, Utah 84341-6310
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (435) 752-9067
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
on Title of each class which registered
Common Stock $.01 Par value OTC Bulletin Board
Series 1 Class A 8% Cumulative
Convertible Preferred Stock None
Securities registered under Section 12(g)
of the Exchange Act: None
(continued on following page)
<PAGE>
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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. [ ]
State Issuer's revenues for its most recent fiscal year: 1999 -
$1,956,000
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days. The aggregate market value of the
Registrant's voting stock held by non-affiliates of the Registrant was
approximately $2,846,280 at April 30, 1999, computed at the closing quotation
for the Registrant's common stock of $0.25 as of April 30, 1999.
State the number of shares outstanding of each of the Issuer's classes
of common equity as of the latest practicable date: at April 30, 1999 there
were 14,126,861 shares of the Registrant's Common Stock and 2,000,000 shares
of Class B Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No
[X]
Documents Incorporated by reference: None
<PAGE>
PART I
ITEM 1 DESCRIPTION OF BUSINESS
History
Digitran Systems, Incorporated is a holding company, incorporated under
the laws of Delaware in 1985, that conducts all of its business operations
through Digitran, Inc. Digitran, Inc., a wholly owned subsidiary of Digitran
Systems, Incorporated, was formed under the laws of the State of Louisiana in
1979. In 1992 it reincorporated in the State of Utah. As used in "ITEM 1
DESCRIPTION OF BUSINESS" the term "Company" refers to the combined operations
of Digitran Systems, Incorporated and Digitran, Inc.
The Company
The Company primarily develops, manufactures and markets simulator
training systems which are used to train personnel in the petroleum,
transportation, and construction industries. The Company began marketing its
first simulator training systems in 1979 and currently markets a variety of
simulator training systems for crane operations, petroleum operations and
heavy duty truck driving.
Going Concern Qualification
The financial statements of the Company have been prepared assuming that
the Company will continue as a going concern. For the year ended April 30,
1999 the "going concern" assumption is qualified due to the Company's current
financial condition and the Company's inability to achieve and sustain
profitable operations in recent years. The company's operations were greatly
affected by a shareholder lawsuit which began in 1993 and was fully satisfied
in July of 1998.
Existing Simulator Training Systems
The Company's simulator training systems generally consist of an
instructor's console; various student consoles; visual, motion and sound
subsystems; cab controls and instrumentation; hardware interface computers and
main simulation computers. The entire set of mechanical, electronic and
computer subsystems are controlled by the operating system and simulation
software. The simulators are designed and manufactured by Digitran engineers
to appear, feel and work like the real-world equipment that is being
simulated.
Training simulators offer higher quality, more frequent and more diverse
training opportunities than the actual equipment can provide. In a simulator,
safety risks during the training period to personnel, equipment, and cargo are
eliminated. In addition, the operating costs of a simulator are lower than
the costs associated with using actual equipment dedicated to training.
Also, the use of the simulator allows for higher volume usage and the ability
to simulate conditions which would be too dangerous or are unavailable for
actual training.
Crane Operations Simulator Training Systems
The Company developed simulator training systems to train operators of
various types of cranes for use in the maritime and construction industries.
These include, but are not limited to, training systems for:
Type of Crane Where Mounted Principal Purpose
Gantry-Single Lift Port Dock Container Management
Gantry-Twin Lift Port Dock Container Management
Gantry-Rubber Tire Port Dock Container Management
Pedestal Port Dock Cargo/Supplies Management
Ship Gantry Ship Cargo/Supplies Management
Ship Pedestal Ship Container/Cargo/Supplies
Management
Offshore Lattice Oil Drilling Rig Container/Cargo/Supplies
Management
Lattice Truck Bulk Materials Management
Telescopic Truck Precision Materials Management
Tower Stationary Heavy Construction Management
Simulated training addresses the two major concerns regarding the
operation of cranes: safety and efficiency. Competitive and cost pressures
drive the industry to improve its overall levels of safety, thus reducing the
risk of injury and damage. In addition, crane operators need to operate as
efficiently as possible. The Company's products have proven to improve both
crane operation safety and efficiency.
Simulator training helps reduce the operator's exposure to liabilities
for an accident should it occur. First, by providing a standard by which
competencies can be measured and maintained, thus reducing the chance of an
accident. Secondly, by providing standardized documentation of the operator's
achieved skill level, thus reducing the chance that the operator can be found
liable for not providing sufficient training to its employees.
The Company's crane simulation systems provide customers with simulation
equipment that can be tailored to the various specific needs of each customer.
The cab enables users to simulate many different kinds of cranes with the same
system. The universal cab features interchangeable control panels designed to
closely resemble crane controls. Generally, as training needs change, users
may add additional training capabilities to their simulator without having to
purchase an entirely new cab and motion base. The instructor's console is
designed to be easily learned and operated and requires little previous
knowledge of computers. The hydraulic motion system is designed to imitate the
variety of movements an operator experiences in an actual crane.
<PAGE>
Included within the simulation experience is the capability to modify and
complicate a scenario so that it resembles actual working conditions. The
Company's crane operations simulator training systems have been designed to
give the trainee hands-on experience in picking up and moving cargo loads
under varying normal, abnormal and emergency conditions and to develop the
hand-eye coordination needed to operate a large crane. Once a trainee has
completed a simulation scenario, the computer analyzes his performance and
generates a printed summary for review. The Company's simulators are created
with the possibility of future upgrades to include additional training
applications.
Petroleum Operations Simulator Training Systems
The market for simulator training systems for the petroleum industry
originated in the mid-1970's and grew in response to increased use of advanced
technologies in petroleum operations. Because of the high costs and
environmental risks of accidents in the petroleum industry, particularly in
off-shore locations, there is an increasing need to train production and
engineering personnel in order to reduce the risk of accidents caused by
operator error. The Company's main petroleum products are briefly summarized
below:
TYPE OF SIMULATOR/SOFTWARE TRAINING AREAS
Drilling and Well Control Day to day operations and emergencies:
Full size, portable and Drilling techniques
ultra lite versions
Land or off-shore operations Blowout Prevention
Cementing
Directional Drilling
Mud analysis's Treatment
Drill Stem Testing, etc.
Production and Workover Procedures and Theory of Production and
Full size and portable versions Workover operations:
Land and off-shore operations Forward and reverse circulation
Reservoir flow testing
Bullheading
Lubricate and Bleeding
Formation fracturing
Equipment failures, etc.
Student Training Programs
Drill Track Directional Drilling
Drill Trainer Cost Estimation
Many other products are currently under development.
<PAGE>
Truck Simulation Systems.
The Company has developed a truck simulator for use in training drivers
in varying types of truck use, from mining and over-the-road hauling using
single, double, triple and tanker trailers, to localized applications such as
those found within ports, terminals and airports. The truck simulator
consists of a truck cab, motion base, projection screen and instructor's
console similar to those found in the Company's crane simulation systems.
The truck simulator is equipped with an operator's cab which offers
interchangeable left-hand and right-hand driving modes for domestic and
international compatibility. The cab is positioned on hydraulic actuators
located underneath the simulator cab which provides vibrations present under
normal driving conditions, jolts during rough driving conditions, and motion
caused by braking, accelerating, turning and skidding.
In addition, the driver trainee views computer generated, textured images
on a wrap-around screen with rear-view insets. The visual system offers the
driving students the ability to view such things as oncoming vehicles, road
hazards, weather conditions, and details such as highway markers. The truck
simulator offers the ability to train drivers in highway, rural, mountain and
urban terrain. The system also includes an instructor's console, giving the
instructor control over all simulation parameters such as problem situations
and environmental conditions, allowing the instructor to view the entire
simulation from the console. The system may be installed in a 48-foot long
climate-controlled trailer for transportation to various training sites, or
in a permanent facility.
The Company believes that the truck simulator will be useful to the
trucking industry in the screening of drivers for aptitude and ability. Thus,
as with the crane simulator, the truck operating entities can assess the skill
levels of their drivers and can document the level of training that the
drivers have received. Through the use of the Company's graphics technology
and its expertise developed in its other simulators, the Company may tailor
the simulation system to the needs of respective customers. Graphics
scenarios, truck cabs and other facets of the simulation experience can be
customized to suit each customer's specific requirements.
The Company has completed and is continuing to work towards the
completion of training curriculum for the trucking industry which combines
simulation, interactive video technology, and classroom0 techniques to provide
training to the new and the experienced driver.
<PAGE>
Sales
Revenues for the year ended April 30, 1999 were as follows:
<TABLE>
<CAPTION>
Simulators % Support Contracts % Total
%
<S> <C> <C> <C> <C> <C> <C>
Crane $ 912,000 47 $ 438,000 22 $ 1,350,000
69
Petroleum $ 535,000 27 $ 36,000 2 $ 571,000
29
Vehicle $ 35,000 2 -0- - $ 35,000
2
Total $1,482,000 76% $ 474,000 24% $ 1,956,000
100%
</TABLE>
Significant fluctuations in the relative percentages are expected between
periods due to the high dollar value and contracts as a one contract
difference may have a significant effect on relative percentages.
Marketing
Since the Company's traditional products require considerable customer
education and post sales support, the Company primarily markets its simulators
through direct contacts between its own personnel and potential customers.
The Company has also engaged independent agents who are generally paid on a
commission basis. The Company provides sales literature, videos, a corporate
background brochure as well as direct mail campaigns targeted to specific
industries. Sales from direct mail require follow-up with telephone contacts,
sales calls, product demonstrations and proposal submissions.
Web Site
The Company continues to invest in internet technology and in its web
site. Marketing brochures, price lists and Company information, etc. are all
being built into the web site. This greatly reduces mailing costs, time and
misunderstandings. The Company expects the web site to ultimately be the
primary vehicle for communicating information to existing and potential
customers.
Marketing Strategy
The target markets for the Company's crane products include maritime
universities and training centers, major world ports (or minor port
"cooperatives"), port authorities and port terminals, insurance risk
management centers, unions and industry trade associations, construction
contractors and crane manufacturers. In the petroleum industry, the target
markets include large oil companies, major drilling contractors, petroleum
engineering institutions, colleges, universities and petroleum training
centers. The market segment for the truck simulation systems includes
companies in the commercial trucking industry, the private trucking industry,
professional trucking schools and institutions conducting truck driver
training, as well as state and federal agencies, transit authorities, and the
union associated with professional truck drivers.
In determining markets in which the Company will enter, it generally
looks at the following market characteristics:
1) The existence, or lack thereof, of competing and comparable simulation
products.
2) Customers see the need for the application of simulation technology in
their training.
3) Potential customers have the resources to justify expenditures for
simulation equipment.
4) There is a sufficient profit potential.
5) The Company has the possibility of gaining market dominance.
6) The market is not sufficiently large to attract larger, more
established simulation competitors.
In addition, in order for the marketing of the Company's products to be
successful, the industry must be such that a) operational mistakes and errors
can be very costly b) risks are contingent upon the operators' ability c)
actual operation of the equipment is experience-oriented d) special
operational situations can occur that require the operator to use unique
skills and e) efficient and effective operation is crucial.
Significant Customers
During the fiscal years ended April 30, 1999 and 1998, net sales to the
following customers accounted for more than 10% of the Company's sales:
1999 1998
Customer A 756,000 890,000
Customer B 369,555 345,000
Customer C 220,580 306,000
Customer D 126,520 -0-
The Company's significant customers usually change from year to year.
Competition
The overall simulator training system market, which includes aviation,
military, nuclear power plant and petroleum operations simulators, is
dominated by large companies and divisions including Evan's and Sutherland
Computer Corporation, Boeing Aerospace Corporation, McDonnel-Douglas
Corporation, the Link Division of Singer Corporation, Hughes Aircraft
Corporation, Westinghouse Corporation, General Electric Corporation and
others. While the Company's simulator training systems do not compete with any
of the simulator training systems manufactured by these large companies and
divisions, such companies and divisions have the resources and ability
necessary to develop simulator training systems in the markets in which the
Company is participating. There is no assurance that these large companies
and divisions will not develop simulator training systems which will compete
with the Company's products.
The Company believes that Drilling Systems, Ltd. based in the United
Kingdom and CS Manufacturing of Albuquerque, New Mexico are its primary
competitors in the petroleum operations simulator training systems market.
Drilling Systems, Ltd. has been in the business of making petroleum operations
simulator training systems since 1988. CS Manufacturing has been in business
for approximately 7 years and its predecessor, CS Simtran, Inc. for over 20
years. There is no assurance that additional competitors will not enter the
market. Competition within the petroleum industry has become increasingly
price competitive resulting in lowered profit margins. See "ITEM 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS".
Competition in the crane operations simulator training systems at present
includes Maritime Dynamics of the United Kingdom. Maritime Dynamics has
relatively few installations and does not compete well against the Company.
Management believes that preemptive marketing efforts taken by the Company to
inhibit new sales by this competitor, together with a technologically superior
simulation system, should ensure continued success within the crane simulation
product line. A new company, Jason & Associates, has begun competing against
Digitran in the crane simulator field
Professional Truck Driving Simulators (a joint venture of FAAC, Inc. and
Perceptronics, Inc.) and Doron Precision Systems, Inc. are believed by the
Company to be its main competitors in the truck operations training industry.
While there are other entities involved in the manufacture and sale of
simulators to the trucking industry the Company is not aware of any which
utilize the high graphics quality and reality of motion on a price competitive
basis with the Company. An additional competitor is ISIM, a relatively new
company in this field.
The Company believes its simulator training systems can compete based on
price, quality, technology, service and ease of use, including the ability to
incorporate customer specific features and customizations.
Manufacturing and Sources of Supply
The Company generally will not build a simulator without an order. On
occasion, however, it will build one of each kind of significant simulator to
use for demonstrations and trade shows. This practice also allows for quicker
deliveries of contracted sales.
The Company designs and specifies the mechanical and electronic
components and subassemblies that comprise the simulators. The Company then
subcontracts with third party vendors for the manufacture and fabrication of
such components and subassemblies. While some simulator components are
procured "off-the-shelf", the Company performs all of the assembly,
integration, testing and quality control prior to installation of the
simulators. The Company also conducts performance and functionality tests
after installation to ensure that the training system is operating according
to specifications. Normally, payment for the simulation system is subject to
acceptance procedures by the customer, before and/or after shipment.
The Company chooses to procure certain simulator components from single
sources. A majority of the components of the simulation systems are available
from multiple sources and to date there have been no significant negative
effects on the Company arising from the use of a single source for certain
components. The Company currently uses a wide variety of semiconductor chips
from manufacturers including Intel, Motorola, NEC and others. Most of the
peripheral equipment is also procured from other industry manufacturers
including Hewlett-Packard, Mitsubishi and Gateway. In addition, the Company
utilizes high-end graphics computers and main simulation computers from
Silicon Graphics, Inc., Star Technologies and Evans and Sutherland, Inc.
Since many components used in the simulators are unique to the Company's
products, suppliers sometimes require lead times and minimum orders. The
Company is careful to manage its projects so as to keep its investment in
inventory parts relatively low, yet ample.
Product Warranty and Service
The Company warrants its simulator training systems to be free of defects
in materials and workmanship for a period of 12 months following delivery.
During the warranty period, the Company will repair or replace the defective
part without charge. At the end of the warranty period, customers can
purchase extended maintenance agreements.
The Company's simulator training systems are equipped with built-in
hardware diagnostic abilities which help identify failures, if any. Users of
petroleum systems are given a spare parts kit which contains parts and tools
to enable them to routinely maintain the simulator. Most of the Company's
simulator training systems also are equipped with a modem so that the Company
can monitor a system via telecommunications to assist and instruct training
personnel in maintenance and service procedures by telephone. The Company
also provides "on-site" service and maintenance when required. Warranty costs
have been relatively low to date.
Research and Development
In the past, the Company did not invest in research and development
unless a customer had engaged it to develop a project or unless the market
demanded certain product enhancements. The Company did not spend as much as
it would have liked on research and development during the fiscal year due to
economic constraints.
Foreign Sales and Concentration 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. One or several customers can account for a large portion
of the Company's earnings. See "ITEM 1 DESCRIPTION OF BUSINESS
Significant Customers". Normally, the Company attempts to secure shipments
to points outside the United States through letters of credit or progress
payments. See Note 1 to the Financial Statements under "Concentration of
Credit Risk". In cases for which shipments are made on open account, the
Company normally retains title to the equipment by virtue of the terms of its
contracts until significant payment has been secured.
Although the Company has attempted to protect its rights to equipment
sold in foreign countries, sales with extended payment terms are subject to
additional risks that upon default, the Company may incur additional expenses
to collect the receivable or repossess the simulator. In addition, sales to
certain countries may require additional documentation and/or licenses.
Foreign sales can be subject to additional risks associated with international
banking, currencies and other considerations which can affect payment terms
and other matters.
Patents, Copyrights and Trademarks
The Company does not hold any patents which it deems material to its
business and has not sought patent protection for the technology it uses in
its products. The Company protects the program codes used in its products as
trade secrets by utilizing nondisclosure agreements with its employees,
customers and others who are permitted access to such codes. The Company has
obtained software copyrights on essentially all the software incorporated into
the Company's non-transportation products. Copyrights provide only limited
protection. The Company has no trademarks.
Employees
As of April 30, 1999, the Company had 31 full-time employees and 5 part
time employees. As of April 30, 1998 the Company had 39 full-time and 2 part-
time employees. In addition, the Company utilizes several sales agents on a
commission basis and engages various consultants. The Company is not a party
to any collective bargaining agreements.
ITEM 2 DESCRIPTION OF PROPERTY
The facilities of the Company consist of two separate buildings located
in North Logan, Utah. The administration and engineering offices of the
Company are located at 2176 North Main, North Logan, Utah. In July, 1999 the
Company entered into a Sale-Leaseback Agreement with a shareholder for these
buildings. The sales price was at fair market value and the lease term is ten
(10) years. A gain of $416,000 was recognized due to the difference between
market value and book value. Lease payments for the fiscal year ended April
30, 1999 were $71,750.
The Company's former administrative offices, located at 90 North 100
East, Logan, Utah is currently listed for sale. The building, purchased in
1989, has approximately 9,000 square feet, 1,500 of which was leased to other
businesses on a month to month basis. As of April 30, 1999, the property was
subject to mortgages and deeds of trust of approximately $587,000.
Subsequently the building was sold in June of 1999.
ITEM 3 LEGAL PROCEEDINGS
In the normal course of business, there may be various other legal
actions and proceedings pending which seek damages against the Company. The
Company is not current in all of its obligations. The potential resolution
of these obligations could cause the Company harm.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The last annual meeting of the shareholders of the Company was held on
February 29, 1996. The results of this meeting were duly reported in Form 10-
KSB as filed for the year ended April 30, 1996. Because the cost of the
annual meeting was considered to be prohibitive in view of other cash
requirements, the Company elected not to have an annual meeting during this
fiscal year.
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PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Since trading of the Company's stock was suspended on May 21, 1993, the
securities were not listed on a public exchange until April 7, 1998 when the
stock (symbol DGTS) was listed on the OTC Bulletin Board.
Market information follows:
1999 1998
High Low High Low
1st Quarter 1 3/8 41/72 n/a n/a
2nd Quarter 3/4 1/4 n/a n/a
3rd Quarter 19/48 7/32 n/a n/a
4th Quarter 3/8 1/5 1 3/8 1
Shareholders
As of April 30, 1999, the Company had 789 record holders of its Common
Stock and 3 record holder of its Class B Common Stock as well as 15 record
holders of its Series 1, Class A 8% Cumulative Convertible Preferred Stock
(the Preferred Stock) as reflected on the books of the Company's transfer
agent.
Dividends
The Company has not paid any dividends on its Common Stock and the Board
of Directors of the Company presently intends to pursue a policy of retaining
earnings, if any, for use in the Company's operations and to finance expansion
of its business. The declaration and payment of dividends in the future on
the Common Stock will be determined by the Board of Directors in light of
conditions then existing, including the Company's earnings, financial
condition, capital requirements and other factors. In addition, as noted
below, the Company is in arrears in the payment of dividends on its Preferred
Stock. Dividends are not payable on any other class of stock ranking junior
to such Preferred Stock until the full cumulative dividend requirements of the
Preferred Stock have been satisfied.
Holders of Preferred Stock are entitled to receive cumulative dividends
at the annual rate of 8% per annum on the stated value of the stock designated
at $7.00 per share, payable semi-annually on September 15 and March 15. No
dividends have been paid since March 15, 1993 resulting in dividends in
arrears of approximately $190,090 as of April 30, 1999. Dividends on
Preferred Stock cannot be paid as long as there exists an Accumulated Deficit.
Given the amount of the Accumulated Deficit, it is not likely that Dividends
will be allowed for several years. Therefore, the Company has offered, and
most shareholders have agreed, to convert the preferred shares into common
shares under the belief that the share price of common stock would recover its
value and exceed the continued accrual of dividends on Preferred Stock.
There are not sufficient preferred shares (left unconverted) to trade
publicly. The Company will continue to encourage Preferred shareholders to
convert their shares into common stock so they might recover their investment
more quickly.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto. See "ITEM 7 FINANCIAL
STATEMENTS".
Plan of Operation.
One of Management's primary objectives is to improve the balance sheet
and financial condition of the Company. The Company's financial condition as
of April 30, 1999 reflected a negative net book value of $4,055,856. Book
value does not always reflect a company's fair market value or intrinsic
value. The Company's current condition is mostly due to aggressive write-
offs of all intangible assets including the Company's software. The software
has significant fair market value although it is carried on the books at no
value. In addition, the Company's tax net operating loss carryforward will
have value up to approximately $4.3 million when and if the Company achieves
and sustains profitable operations.
The Company's net worth was reduced 128% due to the continued increase
in its negative net book value of $4,055,856 at April 30, 1999 versus
$1,778,000 at April 30, 1998. The components of the change during the year
ended at April 30, 1999 reflected in the Company's book value are summarized
below:
Book value at April 30, 1998 ($ 1,778,000)
Proceeds from Sale of Stock in Private Placement 232,000
Issuance of Shares and Warrants for Services 232,910
Conversion of Accounts and Notes Payable to Stock 79,605
Net Loss for Year Ended April 30, 1999 ( 2,822,371)
Book Value at April 30, 1999 ($ 4,055,856)
The Company's resources have been strained severely by the cost of
business interruptions, litigation and settlement of the shareholder lawsuit.
The Company paid $200,000 of its $1,000,000 settlement during the current
year. Cash flow was irregular throughout the year due to the average size of
sales contracts, payment terms associated with international customers, and
the fact that the Company did not have access to traditional credit and
reasonably priced bank financing. The Company's operations did not generate
sufficient cash flow in fiscal year 1999.
The Company's continued existence as a going concern is dependent upon
achieving profitable operations and receiving long term debt or equity
financing. Therefore, the Company is making every effort to bring to closure
sufficient of the proposals currently outstanding to potential customers, to
locate additional customers, and to maximize utilization of available
resources.
Management's Future Plans
To allow the Company to move forward, grow and have sufficient liquidity
for future operations, the Company is seeking to restructure its finances as
follows. In the absence of this or a similar refinancing, the Company will
experience cash flow problems on a chronic basis until operations can generate
positive cash flow:
(1) Equity Financing $3,000,000
Senior Debt 1,500,000
Line of Credit 500,000
Total $ 5,000,000
(i) The Company is seeking to sell common stock in a Private
Placement Offering. However, other potential equity instruments
such as a separate class of Preferred Shares is also possible.
The Use of Proceeds from the financing are described as follows:
Commissions $ 300,000
Payments for Short Term Debt 500,000
Overdue Payables Key Vendors 500,000
Payment for Long Term Debt 500,000
Product Development 350,000
Increased Marketing Efforts 150,000
Increased Engineering Personnel 150,000
Stock Market Relations 50,000
Working Capital and General Corporate
Purposes to Finance Growth 2,500,000
Total $5,000,000
Management's Discussion and Analysis of the Results of Operations 1999 vs.
1998.
Net Sales. Net Sales for 1999 were $1,956,298 as compared to $3,190,000
in 1998 for a 39% decrease. The sales mix between foreign and domestic sales
for 1999 versus 1998 changed from 67% and 33% respectively in 1998 to 98%
foreign and 2% domestic in 1999.
In 1999, the Company sold 1 crane simulator with small modules for
$912,000 versus 1 crane simulator and upgrade sale for $1,563,000 in 1998,
contributing to a 42% decline in crane revenues. Petroleum revenues,
decreased 51% to $535,000 in 1999 versus $1,089,000. Support and other
revenue decreased 5% to $509,000 in 1999 versus $539,000 in 1998. The Company
was adversely affected by currency difficulties in Asia and the Pacific Rim
Countries. The Petroluem industry also experience a decline in 1999. The
Company estimates nearly $4 million in sales were lost or postponed because
of market conditions in Asia and surrounding countries, as well as due to the
decline in the Petroleum industry.
In spite of Digitran's condition, there are dozens of sizeable active
projects currently in various stages of approval for crane, petroleum and
vehicle simulators. In many situations, Digitran is the sole or recognized
superior bidder. Only a few of these potential contract awards can change the
condition of Digitran significantly. The Company is also introducing a new
line of smaller simulators that will be more affordable to smaller
organizations.
Cost of Goods Sold. Cost of Goods Sold declined from 47% in 1998 to 99%
in 1999. This was due primarily to fixed overhead in our engineering and
production staff.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses for 1999 were $2,584,005 versus $2,549,000 for 1998
for a 1% increase. The increase was due primarily to an increase in staff in
the accounting and marketing department. There is an ongoing interest expense
which totaled $490,755 in 1999, versus $399,000 in 1998. Interest expenses
will continue until the Company can restructure its finances, at which time
it hopes to reduce interest costs by 50% or eliminate it totally.
Commencing June 1, 1999, management has begun to implement the following
changes:
1. Significant reduction in overhead, including but not limited to
employee
and employee based benefits.
2. Increased emphasis upon the use of independent contractor
relationships.
3. Independent contractors used in the implementation of specific
projects
as company moves forward.
4. Management has liquidated real estate assets including a building
which
resulted in a significant reduction in liabilities and fixed
overhead.
There were no capital expenditures for the year ended April 30, 1999.
However, both of the Truck Simulators were repossessed during the year 1998.
Both simulators currently carry no value on the books.
Year 2000 Disclosure.
Some of the Company's software products have to be modified to operate
in the year 2000. Planned product upgrades are expected to remedy this
condition. These upgrades are expected to be completed by the fall of 1999.
In addition, the Company's own internal network software is not year 2000
compliant.
Management estimates it will cost approximately $100,000 to make the
product software modifications and an additional $50,000 to replace its own
internal network software. Management believes the risk of not being able to
complete the upgrades on its product software, is remote. Financial
constraints might endanger the timely replacement of the internal network
software. In the event the replacement is delayed, the Company feels that it
can adequately operate with the addition of a few manual procedures, until
such time as the replacement is made.
ITEM 7 FINANCIAL STATEMENTS
The Consolidated Financial Statements are filed as part of this Annual
Report on Form 10-KSB.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Change in Company's auditors from Tanner + Co. to Jones, Jensen &
Company. There are no disagreements with former auditors.
On July 2, 1999, Digitran Systems, Incorporated (the "Company") notified
Tanner + Co. (the "Former Accountant") that the client-auditor relationship
had been terminated. The Former Accountant had served as the Company's
independent public accountant prior to this termination. The Former
Accountant's report on the financial statements as of and for the years
ended April 30, 1998 and 1997 was qualified with respect to the Company's
ability to continue as a going concern. There were no disagreements with the
Former Accountant as of and for the years ended April 30, 1998 and 1997 and
the subsequent interim period through July 2, 1999 on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreement(s), if not resolved to the satisfaction of the
former accountant would have caused it to make reference to the subject matter
of the disagreement(s) in connection with their report.
The Company has engaged Jones, Jensen & Company as of July 2, 1999 to
replace the Former Accountant as the Company's independent certifying public
accountant. The engagement of the new accountants was ratified by the
Company's Board of Directors at the July 1, 1999 meeting of the Board. See:
ITEM 13, EXHIBITS AND REPORTS ON FORM 8-K.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED
AND SUBSIDIARY
Consolidated Financial Statements
April 30, 1999
C O N T E N T S
Independent Auditors' Reports: Jones, Jensen & Company 20
Independent Auditors' Reports: Tanner + Co. 21
Consolidated Balance Sheet 22
Consolidated Statements of Operations 23
Consolidated Statements of Shareholders' Deficit 24
Consolidated Statements of Cash Flows 25
Notes to the Consolidated Financial Statements 27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Digitran Systems, Incorporated and Subsidiary
We have audited the consolidated balance sheet of Digitran Systems,
Incorporated and Subsidiary as of April 30, 1999, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for the year
ended April 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Digitran
Systems, Incorporated and Subsidiary as of April 30, 1999, and the results of
their operations and their cash flows for the year ended April 30, 1999, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred recurring
operating losses, and has an accumulated deficit. These conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
August 17, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Digitran Systems, Incorporated
We have audited the consolidated statements of operations, shareholders'
deficit, and cash flows for the year ended April 30, 1998 of Digitran Systems,
Incorporated. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Digitran Systems, Incorporated for the year ended April 30, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred recurring
operating losses, and has an accumulated deficit. These conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
TANNER + CO.
Salt Lake City, Utah
September 11, 1998
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS
April 30,
1999
CURRENT ASSETS
<S> <C>
Cash $ 6,543
Accounts receivable (net of $38,300 allowance) 248,618
Inventories (Note 2) 68,486
Total Current Assets 323,647
PROPERTY, PLANT AND EQUIPMENT (Note 4) 357,393
TOTAL ASSETS $ 681,040
</TABLE>
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C>
Accounts payable $ 1,399,084
Accrued expenses 1,322,892
Current portion of notes payable (Note 6) 1,864,946
Total Current Liabilities 4,586,922
LONG-TERM LIABILITIES (Note 6) 149,974
Total Liabilities 4,736,896
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' DEFICIT
Preferred stock, $0.01 par value: 1,000,000 shares authorized,
56,575 shares issued and outstanding, (entitled to one-tenth
vote per share) 566
Common stock, $0.01 par value: 25,000,000 shares authorized,
14,126,861 shares issued and outstanding (entitled to one-tenth
vote per share) 141,269
Class B common stock, $0.01 par value: 5,000,000 shares
authorized, 2,000,000 shares issued and outstanding (entitled
to one vote per share) 20,000
Minority interest -
Capital in excess of par value 9,315,986
Accumulated deficit (13,533,677)
Total Shareholders' Deficit (4,055,856)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 681,040
</TABLE>
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended
April 30,
1999 1998
<S> <C> <C>
NET SALES $ 1,956,298 $ 3,190,000
COST OF SALES 1,934,904 1,515,000
GROSS PROFIT 21,394 1,675,000
EXPENSES
Selling, general and administrative expenses 2,584,005 2,549,000
Depreciation and amortization 148,379 109,000
Bad debt expense 38,300 -
Total Expenses 2,770,684 2,658,000
LOSS FROM OPERATIONS (2,749,290) (983,000)
OTHER INCOME (EXPENSE)
Interest expense (490,755) (399,000)
Gain on disposal of assets 417,674 -
Other income - 18,000
Total Other Income (Expense) (73,081) (381,000)
LOSS BEFORE INCOME TAXES (2,822,371) (1,364,000)
INCOME TAX BENEFIT (Note 8) - -
NET LOSS (2,822,371)
(1,364,000)
OTHER COMPREHENSIVE INCOME (LOSS)
Dividends on convertible preferred stock; unpaid (31,682) (81,000)
Total Other Comprehensive Income (Loss) $ (2,854,053) $(1,445,000)
BASIC LOSS PER COMMON SHARE $ (0.21) $ (0.12)
WEIGHTED AVERAGE SHARES OF COMMON STOCK 13,479,828 11,800,000
</TABLE>
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Shareholders' Deficit
For the Years Ended April 30, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance,
April 30, 1997 358,795 $ 4,000 8,620,869 $ 86,000
Shares issued for cash - - 931,731 10,000
Shares issued for services - - 1,041,038 10,000
Shares issued in payment
of liabilities - - 1,574,533 16,000
Conversion of preferred
stock to common stock (215,028) (3,000) 639,584 6,000
Net loss - - - -
Balance at
April 30, 1998 143,767 1,000 12,807,755 128,000
Reverse rounding,
April 30, 1998 - 438 - 77
Shares issued for cash - - 232,000 2,320
Shares issued for services - - 578,390 5,785
Stock for debt - - 247,140 2,471
Conversion of preferred (87,192) (872) 261,576 2,616
Net loss - - - -
Balance at April 30, 1999 56,575 $ 566 14,126,861 $141,269
</TABLE>
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Shareholders' Deficit
For the Years Ended April 30, 1999 and 1998
<TABLE>
<CAPTION>
Class B Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
<S> <C> <C> <C> <C>
Balance,
April 30, 1997 2,000,000 $20,000 $ 6,311,000 $
(9,347,000)
Shares issued for cash - - 922,000 -
Shares issued for services - - 463,000 -
Shares issued in payment
of liabilities - - 1,092,000 -
Conversion of preferred
stock to common stock - - (4,000) -
Net loss - - - (1,364,000)
Balance at
April 30, 1998 200,000 20,000 8,784,000
(10,711,000)
Reverse rounding,
April 30, 1998 - - (1,668) (306)
Shares issued for cash - - 229,680 -
Shares issued for services - - 228,584 -
Stock for debt - - 77,134 -
Conversion of preferred - - (1,744) -
Net loss - - - (2,822,371)
Balance at
April 30, 1999 2,000,000 $2,000,000 $9,315,986 $(13,533,677)
</TABLE>
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
April 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(2,822,371) $(1,364,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 148,379 109,000
Bad debt expense 38,300 -
Issuance of common stock for services 232,909 1,580,000
Payment of services in exchange
for note payable 269,870 309,000
Payment for inventories in exchange
for notes payable - 30,000
Provision for losses on accounts receivable - (80,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 8,082 13,000
(Increase) decrease in inventory 627,514 (151,000)
Decrease in prepaids and other current assets - 11,000
Increase (decrease) in accounts payable
and other current liabilities 1,161,976 (1,154,000)
(Decrease) in billings in excess of costs - (267,000)
Net Cash Used In Operating Activities (335,341)
(964,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 409,396 -
Purchase of property and equipment (37,168) -
Net Cash Provided In Investing Activities 372,228 -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 624,468 817,000
Payments on notes payable (951,812) (759,000)
Issuance of common stock 232,000 932,000
Net Cash Used by Financing Activities $ (95,344) $ 990,000
</TABLE>
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Years Ended
April 30,
1999 1998
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (58,457) $ 26,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 65,000 39,000
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 6,543 $ 65,000
</TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
History and Business Activity
Digitran Systems, Incorporated (the Company) was formed under the laws
of the State of Delaware in March 1985 as Mark, Inc. The Company began
business operations in September 1985 when it acquired all the outstanding
shares of Digitran, Inc., the Company changed its name to Digitran Systems,
Incorporated. In 1979, Digitran, Inc. introduced a digital petroleum well
pressure control simulator training system. In addition, Digitran, Inc., has
developed crane training simulation systems for the construction and maritime
crane industries and a truck driving training simulation system. In 1999, the
Company started Digitran Simulation Systems, Inc., a 95%-owned subsidiary.
Going Concern
The Company has suffered recurring losses from operations and has a
shareholders' deficit of $4,055,856 as of April 30, 1999. The Company's
continued existence is dependent upon its ability to achieve its 1999/2000
operating plan, which includes cost reductions and additional funding from
equity financing. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result from the outcome of this
uncertainty.
The Company continues to rely on the sale of its securities and exchange
of its securities to fund its operations. The Company received $232,000 in
net proceeds from the sale of its common stock during 1999.
Principles of Consolidation
The accompanying consolidated financial statements include Digitran
Systems, Incorporated, and its wholly-owned subsidiaries, Digitran, Inc. and
Digitran Simulation Systems, Inc. All material intercompany transactions have
been eliminated.
Cash Equivalents
For purposes of the statement of cash flows, cash includes all cash
investment with original maturities to the Company of three months or less.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Inventories
Inventories are valued at net realizable value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated
depreciation. Depreciation and amortization on capital leases and property,
plant and equipment is determined using the straight-line method over the
estimated useful lives of the assets or terms of the lease. Expenditures for
maintenance and repairs are expensed when incurred and betterments are
capitalized. Gains and losses on sale of property, plant and equipment are
reflected in operations.
The useful lives are as follows:
Building and improvements 31 years
Computer and office equipment 2-5 years
Investment in Partnership
The Company owns a fifty percent interest in a partnership (Trucksale
Learning Center) (TLC) formed to provide training for truck drivers. The
Company accounts for the investment using the equity method, which, due to
continued net operating losses, resulted in no investment in TLC as of April
30, 1999. The terms of the agreement also limit the Company's obligation to
fund losses so no obligation exists beyond the amount invested in the
partnership. The Company recognized rental income of $60,000 from the
partnership in 1999.
Revenue Recognition
The Company recognizes revenue on the manufacture and sale of computer
driven simulation equipment. The sales can be from existing inventory of the
Company, wherein the revenue is recognized once the amount and collectibility
are reasonably assured. Sales may also be generated through contractual
agreements between the company and their customers which require the Company
to manufacture the product and/or customize some of the software applications
for specific training scenarios. Where the Company is required to develop and
manufacture a simulator, the company uses long-term contract accounting, using
the percentage of completion method of accounting for uncompleted contracts.
Such accounting takes into account the costs, estimated earnings and
expectation of collection, as well as revenue to date on contracts not yet
completed. The amount of revenue recognized is not related to the progress
billings to customers. As of April 30, 1999 and 1998, there were no
significant contracts in progress.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
For most contracts, the revenue recognized at the statement date is the
proportion of total revenue equal to the percentage of the labor hours
incurred to date on that contract compared to anticipated final total labor
hours to be incurred in completing the contract, based on current estimates
of labor hours required to complete the contract.
Contract costs include all direct labor and benefits, material unique to
or installed in the project, and indirect costs allocation, including employee
benefits and equipment expense.
As contracts extend over one or more years, revisions in cost and earning
estimates during the course of the work are reflected in the accounting period
in which the estimates are adjusted. At the time a loss on a contract becomes
known, the entire amounts of the estimated ultimate loss is recognized in the
financial statements.
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect
to temporary differences between financial and tax reporting.
Basic Loss Per Share
Basic loss per common share is based on net loss after preferred stock
dividend requirements and the weighted average number of common shares
outstanding, including Class B common stock, during each year after giving
effect to stock options considered to be dilutive common stock equivalents,
determined using the treasury stock method. Fully diluted net loss per common
share is not materially different from primary net loss per common share.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers.
Accordingly, the Company performs ongoing credit evaluations of its customers
and maintains allowances for possible losses which, when realized, have been
within the range of management's expectations.
The Company has cash in bank and short-term investments which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to any
significant credit risk on cash and short-term investments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
Reclassifications and Presentation
Certain accounts in the 1998 financial statements have been reclassified
to conform with the current year presentation. Also, the presentation of the
1998 numbers are rounded to the nearest thousand.
NOTE 2 - INVENTORIES
Inventories consist of the following at April 30, 1999:
Parts and supplies $ 25,926
Finished goods 42,560
$ 68,486
NOTE 3 - RELATED PARTY TRANSACTIONS
At April 30, 1999, the Company included approximately $69,600 of advances
and commissions payable to a shareholder/officer and employees, and $103,000
of accrued stock compensation to employees in accrued expenses.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at April 30,
1999:
Buildings and improvements $ 255,000
Computer equipment 589,169
844,169
Less accumulated depreciation and amortization 486,776
$ 357,393
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Company has a partnership agreement with a Canadian corporation,
Trucksafe, Inc. (TSI). This corporation consists of two Canadian trucking
companies, Westcan and Economy Carriers. The partnership agreement creates
a truck training center, Trucksafe Learning Center (TLC), in Canada. The
Company contributed 50% of the agreed value of one "Trucksafe 1000" truck
simulation system for a one-half interest in the training center entitling the
Company to receive one-half of all profits from the training center and no
responsibility to fund losses or cash calls. The Canadian partner purchased
a one-half of all profits from the training center and no responsibility to
fund losses or cash calls. The Canadian partner purchased a one-half interest
in TLC through $600,000 of consideration. TLC then purchased the other 50%
interest in the simulation system for $600,000, consisting of cash of $50,000
and a note receivable of $550,000. During the year ended April 30, 1998, the
Company repurchased the 50% interest in the simulator in exchange for relief
of the note receivable of $150,000. The Company, subsequently, entered into
an operating lease agreement with TLC, which calls for monthly payments of
$5,000 over a two-year period. The simulator is included in property, plant,
and equipment and is being depreciated over the two-year lease period.
Summarized unaudited financial information for TLC have not been
presented since the Company has no obligation to fund losses incurred by TLC,
and no investment recorded for the net assets of TLC.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 6 - NOTES PAYABLE
Notes payable at April 30, 1999 are comprised of the following:
Notes payable to stockholder, officers or directors with
interest at rates ranging from 12% to 60%, due on demand,
unsecured or secured by receivables, or equipment. $ 1,065,676
Note payable to a stockholder with interest due monthly
at a rate of 15%, secured by receivables, due July 1, 1999. 150,000
Unsecured note payable to an individual with interest at 15%
due monthly and the total principal balance due
December 31, 1999. 250,000
Note payable to an individual in monthly aggregate installments
of $2,150, including interest at 8 - 9%, unsecured or secured
by a building. 45,863
Note payable to an officer due with interest at a rate of 2%
per month, on demand, unsecured. 24,714
Note payable to investors with interest at a rate of 2% per
month due on demand, secured by building. 100,080
Note payable to investor with interest at a rate of 40%
per annum due on demand, unsecured. 28,249
Note payable to a bank in monthly installments of $1,362,
including interest at 10%%, due July 3, 2009, secured
by a building. 104,111
Notes payable to a bank, due on demand with interest at prime
plus 2% (10.50% at April 30, 1999), secured by accounts
receivable, equipment, inventory and a note receivable. 144,194
Note payable to a vendor in monthly installments of $7,540
including interest at prime plus 2% (10.50% at April 30, 1999),
secured by equipment. 5,349
Unsecured note payable to a financial institution in monthly
installments of $1,000, including interest at 12%. 51,567
Note payable to a stockholder, with interest at 12%, due
when the market price of the Company's common stock reaches
$2.00 per share, secured by common stock of the Company. 33,917
Balance forward $ 2,003,720
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 6 - NOTES PAYABLE (Continued)
Balance forward $2,003,720
Notes payable to a Company, with interest at 18%, due on
demand, secured by receivables. 11,200
2,014,920
Less current portion 1,864,946
Long-term debt $ 149,974
Future maturities of notes payable are as follows:
Year Ending Amount
2000 $ 1,864,946
2001 -
2002 -
2003 -
2004 -
Thereafter 149,974
$ 2,014,920
NOTE 7 - 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
$0.05 per share annual dividend and a $0.01 per share liquidation preference
over Class 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 $0.05 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.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 7 - CAPITAL STOCK (Continued)
The Series 1 Class A 8% Cumulative Convertible Preferred Stock has a par
value of $0.01 per share. As of April 30, 1999, there were 56,575 shares
outstanding. Holders of preferred shares are entitled to cumulative dividends
of 8% per annum on the stated value of the stock, designated at $7 per share.
Dividends are payable semi-annually on September 15 and March 15. No
dividends have been paid since March 15, 1993, resulting in dividends in
arrears for 1999 and 1998 of approximately $190,090 and $403,000,
respectively, or $3.36 and $2.80 per share, respectively. 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. Convertibility of any
preferred stock issued may be exercised at the option of the holder thereof
at three 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.
NOTE 8 - INCOME TAXES
The income tax benefit differs from the amount computed at federal
statutory rates as follows:
For the Years Ended
April 30,
1999 1998
Income tax benefit at statutory rate $ 993,800 $ 442,000
Change in valuation allowance (977,000) (373,000)
Life insurance and meals (16,800) (4,000)
Other - (65,000)
$ - $ -
Deferred tax assets (liabilities) at April 30, 1999 are comprised of the
following:
Net operating loss carryforward $ 4,371,000
Depreciation -
Accrued commission
- -
Valuation allowance (4,371,000)
$ -
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 8 - INCOME TAXES (Continued)
At April 30, 1999, the Company has a net operating loss carryforward
available to offset future taxable income of approximately $12,840,000, which
will begin to expire in 2008. If substantial changes in the Company's
ownership should occur, there would also be an annual limitation of the amount
of NOL carryforwards which could be utilized.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Financing Activities
For the Years Ended
April 30,
1999 1998
Issuance of stock for services $ 234,369 $ 473,000
Common stock issued for payment of debt 118,150 -
Notes payable issued for services rendered 204,414 -
Services rendered for payment of notes
payable 1,028,476 1,108,000
Total $ 1,585,409 $1,581,000
During the year ended April 30, 1998, the Company converted 87,192 shares
of preferred stock to 261,576 shares of common stock in accordance with the
preferred stock conversion feature.
For the Years Ended
April 30,
1999 1998
Interest paid $ 113,261 $ 288,000
Income taxes paid $ - $ -
NOTE 10 - MAJOR CUSTOMERS AND EXPORT SALES
Sales to major customers which exceeded 10% of net sales are as follows:
For the Years Ended
April 30,
1999
1998
Company A $ 756,000 $ 890,000
Company B $ 369,555 $ 345,000
Company C $ 220,580 $ 306,000
Company D $ 126,520 $ -
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 10 - MAJOR CUSTOMERS AND EXPORT SALES (Continued)
Export sales to unaffiliated customers were as follows:
For the Years Ended
April 30,
Region 1999 1998
North America (excluding the U.S.) $ 756,000 $ 634,000
Asia 220,580 -
Australia 369,555
- -
Europe - 890,000
$1,346,135 $ 1,524,000
NOTE 11 - STOCK OPTIONS AND WARRANTS
Information regarding the Company's stock options and warrants are
summarized below:
Number of
Options and Option Price
Warrants Per Share
Outstanding at April 30, 1998 2,970,000 $ 0.50 - 1.50
Granted 1,829,371 0.25 - 2.25
Exercised (175,000) 0.40 - 0.50
Expired or canceled (879,026) 0.98 - 1.50
Outstanding at April 30, 1999 3,745,345 $ 0.25 - 2.25
Options and warrants exercisable at April 30, 1999 and 1998 are 3,745,345 and
2,970,000, respectively.
NOTE 12 - STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (FAS 123) which established financial accounting and
reporting standards for stock-based compensation. The new standard defines
a fair value method of accounting for an employee stock option or similar
equity instrument. This statement gives entities the choice between adopting
the fair value method or continuing to use the intrinsic value method under
Accounting Principles Board (APB) Opinion No. 25 with footnote disclosures of
the pro forma effects if the fair value method had been adopted. The Company
has opted for the latter approach. Accordingly, no compensation expense has
been recognized for the stock option plans. Had compensation expense for the
Company's stock option plan been determined based on the fair value at the
grant date for awards in 1999 and 1998 consistent with the provisions of FAS
No. 123, the Company's results of operations would have been reduced to the
pro forma amounts indicated below:
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 12 - STOCK-BASED COMPENSATION (Continued)
For the Years Ended
April 30,
1999
1998
Net loss applicable to common stock - as reported $(2,889,186) $(1,445,000)
Net loss applicable to common stock - pro forma $(2,899,811) $(1,645,000)
Loss per share - as reported $ (0.22) $(0.12)
Loss per share - pro forma $ (0.22) $(0.14)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
For the Years Ended
April 30,
1999
1998
Expected dividend yield $ - $ -
Expected stock price volatility 0.01% 0.01%
Risk-free interest rate 5.0% 5.0%
Expected life of options 3 years 1-5 years
The weighted average fair value of options granted during 1999 and 1998
are $0.92 and $0.13, respectively.
NOTE 13 - SHAREHOLDER LITIGATION
The Company was a Defendant in a class action lawsuit filed by certain
stockholders of the Company alleging that the company published or released
false or misleading information relating to the recognition of revenue on
certain contracts and improperly capitalizing certain simulator development
costs. Following a trial, which commenced on September 30, 1996, the Company
was found to be twenty-five (25%) percent liable to the Class Members in the
lawsuit. In addition, the Company's subsidiary, Digitran, Inc., was also
found liable for twenty-five (25%) percent of the damages, and the Company's
former President, Donald G. Gallent, was found to be fifty (50%) percent
liable, and a Judgment was rendered at the time in the amount of $13,000,000,
which judgment was rendered in total against all three defendants, without
attribution of pro rata fault. The Company reached a court approved
Settlement Agreement with Class Counsel as of July 15, 1997. The Settlement
Agreement called for Digitran to pay the sum of $600,000 within forty-five
days of the date of the preliminary district court approval by the United
States District Court for the District of Utah, and two additional payments
of $200,000 each. The Company has paid the payments within the due date
called for in the settlement agreement. All other parties to the action have
dismissed their claims and there will be no appeal by any party to the
Company's knowledge at this time. Based on this settlement agreement, as of
April 30, 1998, the Company has included $200,000 in accrued expenses. The
remaining liability of $200,000 was paid subsequent to April 30, 1998. As
collateral, the Company was required to issue 800,000 shares of common stock.
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999 and 1998
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in a lawsuit filed by an
individual alleging damages arising out of services performed. In the opinion
of management, the existing litigation is not considered material in relation
to the Company's financial position.
Subsequent to year-end the Company was named as a defendant in a lawsuit
filed by the former CFO of the Company seeking damages on two promissory
notes. Based on information currently available, the damages from such
litigation, if any, which could be incurred by the Company is uncertain.
Consequently, no accrual has been made in the financial statements for
possible losses related to these cases.
In the normal course of business, there may be various other legal
actions and proceedings pending which seek damages against the Company.
Management believes that the amount, if any, that may result from these
claims, will not have a material adverse affect on the financial statements.
The Company has not filed any federal quarterly payroll withholding
reports to the IRS since March of 1998. The Company has accrued the tax
withholding liability for these reports and has estimated and accrued related
penalties and interest. These accrued and accumulated payroll tax amounts
will be a continuing liability of the corporation until fully paid.
Management indicates it intends to pursue a workable payment schedule with the
appropriate taxing authorities until fully current. Consequently, it is
uncertain what action, if any, the IRS may pursue regarding the collection of
these taxes.
NOTE 15 - CHANGES IN ACCOUNTING PRINCIPLES
Other Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. This statement
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. The Company has retroactively applied the provisions of this new
standard by showing the other comprehensive income for all years presented.
Basic Loss Per Common Share
During the Company's fiscal year ended 1998, the Company implemented
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution of securities that could share in
the earnings of an entity that were outstanding for the period, similar to
fully diluted earnings per share.
<PAGE>
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names, ages and positions of the directors and executive officers of
the Company are as follows:
NAME AGE POSITION
Loretta Trevers 50 President and Chairman of the Board
Scott E. Lybbert 41 Chief Financial Officer*
Gary Blum 58 Director
Jamie Levey 38 Director*
Phillip P. Andrews 50 Director
Aaron Etra 58 Director
Directors are elected at the Annual Meeting of Shareholders and serve
until their successors have been elected and qualified. Officers are elected
by and serve at the discretion of the Board of Directors and serve until their
successors have been elected and qualified. All persons hold the same
position with Digitran, Inc. and Digitran Systems, Incorporated. Digitran,
Inc. is the operating subsidiary of Digitran Systems, Incorporated.
Loretta P. Trevers is one of the original founders of the Company in
1979, has served as President and CEO since March of 1994 and as Chairman of
the Board since 1985. She has been a trustee for the Utah Information
Technology Association since 1990.
Gary Blum was appointed director of the Company in October 1994. Mr. Blum
is the principal of the Law offices of Gary Blum, Los Angeles, California,
which he founded in June 1988. Mr. Blum currently serves as a director of PCC
Group, Inc., a publicly held company specializing in the manufacturing and
distribution of personal computers and equipment and training devices. Mr.
Blum received an MBA and JD from the University of Southern California in
1978.
Phillip P. Andrews was appointed director of the Company in July 1998.
Mr. Andrews is the Senior Vice President of Century Business Services, Inc.
From 1998 to 1999 he was the Director of Information Technology of Case
Corporation. From 1991 to early 1998, he was employed by EDS in various
capacities including Vice President of Strategic Planning and Strategic
Alliance. He has extensive experience in management and computer technology
in several highly-regarded companies such as Deloitte & Touche, General
Electric, IBM and Ford Motor Company. He is an author and offers expertise
regarding megatrends in information technology to the Pentagon, and is a
member of several information technology organizations. Mr. Andrews
received his MBA from Florida Institute of Technology in 1984 and BSIE in
Industrial Engineering from the University of Toledo in 1974.
Aaron Etra has been the President of Investors & Developers Associates,
Inc. which is a developer of commercial, residential and industrial property
in the U.S., since 1981 as well as President of Henceforth Hibernia Inc., a
biotechnology and consumer products and research and development company since
1998. Mr. Etra has been an Attorney and a counselor at law since 1966
specializing in commercial, corporate, tax and personal law. His professional
education includes a J.D. in Law at Columbia University in 1965, L.L.M. in Law
at New York University in 1966, a B.A. in Political Science and Economics at
Yale University in 1962 and he attended the Hague Academy of International Law
during the summers of 1964-65.
* Indicates that these persons were not acting directors and/or officers of
the Company at the time the 10-K was filed.
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended.
During the fiscal year ended April 30,1999, Loretta P. Trevers, officer,
director and beneficial owner of more than 10% of the Common Stock, did file
several late reports on Form 5 relating to sales of stock and gift
transactions.
<PAGE>
ITEM 10 EXECUTIVE COMPENSATION
The following table sets forth certain specified information concerning
the compensation of the Chief Executive Officer of the Company and any
executive officer whose total annual salary and bonus exceeded $100,000 (the
Named Executive Officers).
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Awards(s) Options/ Payout sation
Position Year Salary($) Bonus($)($) (shares) SARs (#) ($) ($)
Loretta Trevers, Chairman of the Board and Chief Executive Officer**
1999 $140,000 $ -0- (1) -0- 416,225 -0- -0-
1998 $140,000 $ -0- (1) 28,000 200,000 -0- -0-
Scott E. Lybbert, Chief Financial Officer, Corporate Secretary
1999 $115,000 $ -0- $12,000(2) 28,000 150,000 -0- -0-
(1) Loretta Trevers also received the use of an automobile purchased by the
Company and personal benefits paid by the Company. The aggregate incremental
cost of these items is less than 10% of the total annual salary and bonus
paid to Loretta Trevers.
(2) Scott E. Lybbert was given $1,000 per month for living expenses, due to
the fact that he came to work for the Company from Florida and the rest of his
family remained in Florida. Scott E. Lybbert also received the use of an
automobile purchased by the Company. The aggregate incremental cost of these
items is less than 10% of the total annual salary and bonus paid to Scott E.
Lybbert.
* Note: Sandeep Gupte who is not an officer of the company; however he was
paid $120,000 per year salary to manage the engineering department.
** Note: Subsequently, Ms. Trevers and Mr. Gupte's salaries were reduced by
15% on June 1, 1999. Both their salaries were further reduced 50% of their
original salaries as of August 1, 1999.
Expenses
At the beginning of the year, the Company owed Loretta Trevers
$13,250.17. This debt was increased by advances of monies loaned to the
Company plus interest, as well as expenses owed to Ms. Trevers and then that
total was also decreased by payments made to Ms. Trevers throughout the year.
At April 30, 1999 the Company owed Ms. Trevers $42,548.50 in outstanding
expenses, monies owed and interest.
As of April 30, 1999, the Company owed Scott E. Lybbert $91,167.94 for
monies advanced to the Company, outstanding expenses and interest.
As of April 30, 1999, the Company owed Sandeep Gupte $39,124.36 for
monies advanced to the Company, outstanding expenses and interest. The
Company also owed Mr. Gupte $38,912.50 for employee bonus' and outstanding
commissions.
Note: A former employee related to Ms. Trevers by marriage is still owed
$12,038 for outstanding expenses, interest and commissions.
Other Items
There were no exercises of stock options (or tandem stock appreciation
rights) and freestanding appreciation rights (or unexercised options or stock
appreciation rights) made during the fiscal year ended April 30, 1999 by any
Named Executive Officer. The following table represents outstanding options
by officers of the Company:
Options and Stock Issuances
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End
($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized($) Unexercisable Unexercisable
Loretta Trevers
(Chief Executive Officer)
1999 -0- -0- 731,225/0 $ -0-/0
1998 -0- -0- 315,000/0 $ 20,000/0
Scott E. Lybbert
(Chief Financial Officer)
1999 -0- -0- 300,000/0 $ -0-/0
1998 -0 -0- 150,000/0 $ -0-/0
* Note: Sandeep Gupte, who is not an officer of the Company, received
100,000 options as of April 30, 1999, giving him a total of 300,000 options
with -0- value of unexercised in-the-money options/SAR FY-End.
There were no long term incentive plan awards by the Company during the
fiscal years ended April 30, 1999 and 1998, to any Named Executive Officer.
Director Compensation
At the discretion of the Chairman of the Board, an option exercisable for
a period of five years to acquire 10,000 shares of Common Stock at a price
based on market value on the first trading day in January of the year could
be granted to each currently serving Director. No options were granted during
the fiscal years ended April 30, 1999 or 1998.
The Company's Bylaws as well as Delaware and Utah corporate statutes
provide for indemnification of and advances of expenses (including legal fees)
under certain circumstances for officers and directors who are a party to or
threaten to be made a party to any proceeding by reason of the fact that they
are a director, officer or employee of the Company, against expenses and
amounts paid in settlement of such actions.
Employment Agreement
In August 1997 the Company entered into an employment agreement with the
Vice President of Engineering, (a non-corporate officer position), Sandeep
Gupte. In addition to salary, the agreement provides for the issuance of
options to purchase up to 100,000 shares of Common Stock exercisable at the
fair market value of the stock as determined by the independent auditors, as
soon as practicable, but not more than thirty (30) days after the commencement
of trading of the Common Stock. The options will be exercisable for a period
of 5 years from their vesting dates. The shares underlying the options will
be registered in the next registration statement filed by the Company.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 30, 1999 and as adjusted to
give effect to the sale of the maximum 2,000,000 shares of Common Stock
included in this offering, the number of shares of Common Stock, Series 1
Class A 8% Cumulative Convertible Preferred Stock (the "Preferred Stock") and
Class B Common Stock beneficially owned by each person known to be the
beneficial owner of more than five percent of the outstanding shares of the
Company's Common Stock, Preferred Stock and Class B Common Stock, by each
director and each officer of the Company and by all officers and directors as
a group. Unless otherwise indicated, all persons have sole voting and
investment power over such shares, subject to community property laws.
<TABLE>
<CAPTION>
Name and Number Number
Address of of shares Percent of of outstanding
Beneficial of outstanding outstanding shares of Class
B Owner\Identity Common Common Common
of Group Stock Stock Stock
<S> <C> <C> <C>
Loretta P. Trevers*
2176 North Main
N. Logan, UT 84341 2,205,973(1) 15.61% 1,800,000
Loretta P. Trevers*
Trevers Trust/Trust Accounts
2176 North Main
N. Logan, UT 84341 920,000(2) 6.51% 200,000
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 1,301,904 9.21% 0
Scott E. Lybbert***
2176 North Main
N. Logan, UT 84341 116,523 0.82% 0
Sandeep Gupte
2176 North Main
N. Logan, UT 84341 194,334 1.38% 0
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 135,480 0.96% 0
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 277,100 1.96% 0
Jamie Levey****
40 Wall Street, 59th Fl.
New York, NY 10005 6,666 ** 0
Phillip P. Andrews*
4829 Cypress Rd
Frisco, TX 75034 0 ** 0
All executive officers
and directors as a
group (6 person) 2,741,742(1) 19.35% 1,800,000
</TABLE>
<TABLE>
<CAPTION>
Name and Percent of Number and
Address of Outstanding Percent of
Beneficial Shares of Outstanding Percent of
Owner\Identity Class H Shares of Total
Voting
of Group Common stock Preferred stock Power
<S> <C> <C> <C>
Loretta P. Trevers*
2176 North Main
N. Logan, UT 84341 90% 0/0 59.21%
Loretta P. Trevers*
Trevers Trust/Trust Accounts
2176 North Main
N. Logan, UT 84341 10% 0/0 8.56%
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 0 0/0 3.81%
Scott E. Lybbert***
2176 North Main
N. Logan, UT 84341 0 0/0 **
Sandeep Gupte
2176 North Main
N. Logan, UT 84341 0 0/0 **
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 0 0/0 **
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 0 0/0 **
Jamie Levey****
40 Wall Street, 59th Fl.
New York, NY 10005 0 0/0 **
Phillip P. Andrews*
4829 Cypress Rd
Frisco, TX 75034 0 0/0 **
All executive officers
and directors as a
group (6 person) 90% 0 59.21%
</TABLE>
*Indicates current officer or director of the Company.
**Less than one percent
***Indicates this person was no longer an officer of the Company, as of the
June 1, 1999
****Indicates this person was no longer a director of the Company, as of June
7, 1999
(1) Includes 1,800,000 shares of Class B Common Stock convertible into
1,800,000 shares of Common Stock.
(2) Includes 720,000 shares of Common Stock and 200,000 shares of Class B
Common Stock held by a trust of which Ian Frenche is the Trustee. Ms Trevers
does not control the voting rights of these shares. Beneficiaries of the
trust include three of Ms Trever's children.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than payment of employee and third party obligations of the Company
by Loretta Trevers and as duly reported under ITEM 10, Expenses, there is
nothing to report in this category.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
Regulation S-B
Exhibit Number
8.1 Letter of consent from current independent auditors
(B) Reports on Form 8-K
(1) Form 8-K, July 2, 1999: Change in auditors
(2) Form 8-K/A, July 2, 1999: Amended, change in auditors
<PAGE>
Item 13: Exhibit 8.1
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Digitran Systems, Inc.
Logan, Utah
We hereby consent to the use of our audit report dated August 17, 1997 in this
Form 10KSB of Digitran Systems, Inc. for the year ended April 30, 1999, which
is part of this Form 10KSB and all references to our firm included in this
Form 10KSB.
Jones, Jensen & Company
Salt Lake City, Utah
August 27, 1999
<PAGE>
Item 13: B-1 Form 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT
Date of report (Date of earliest event reported): July 2, 1999
DIGITRAN SYSTEMS, INCORPORATED.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-11034 72-0861671
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
2176 NORTH MAIN, P.O. BOX 6310, NORTH LOGAN, UTAH 84341-6310
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (435) 752-9067
Item 4. Changes in Registrant's Certifying Accountant.
On July 2, 1999, Digitran Systems, Incorporated (the "Company")
notified Tanner + Co. (the "Former Accountant") that the client-auditor
relationship had ceased. The Former Accountant had served as the Company's
independent public accountant prior to its resignation. The Former
Accountant's report on the financial statements for the past two years did
not contain any adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to any uncertainty, audit scope or accounting
principles. There were no disagreements with the Former Accountant on any
matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
The Company has engaged Jones, Jensen & Company as of July 2,1999
to replace the Former Accountant as the Company's independent certifying
public accountant. The engagement of the new accountants was ratified by the
Company's Board of Directors at the July 1, 1999 meeting of the Board.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
16.1 Letter on change in certifying public accountant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on behalf by the
undersigned hereunto duly authorized.
July 19, 1999
By:/s/ Loretta Trevers, President
Loretta Trevers, President
EXHIBIT-16.1
LETTER RE: CHANGE OF CERTIFYING ACCOUNTANT
July 28, 1999
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Digitran Systems, Incorporated
Ladies and Gentlemen:
We were previously principal accountants for Digitran Systems, Incorporated.
And, under the date of July 2, 1999, we reported on the consolidated
financial statements of Digitran Systems, Incorporated as of and for the
years ended April 30, 1998 and 1997. On July 2, 1999, our services were
terminated. We have read Digitran Systems, Incorporated's statements
included under Item 4 of its Form 8-K dated July 19, 1999, and we agree with
such statements, except that we are not in a position to agree or disagree
with Digitran Systems, Incorporated's statement that they have engaged
Jones, Jensen & Company as independent certified public accountants and that
such engagement was ratified by the Board of Directors at the July 1, 1999
meeting.
Very truly yours,
TANNER + CO.
<PAGE>
Item 13: B-2 Form 8-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT
Date of report (Date of earliest event reported): July 2, 1999
DIGITRAN SYSTEMS, INCORPORATED.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-11034 72-0861671
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
2176 NORTH MAIN, P.O. BOX 6310, NORTH LOGAN, UTAH 84341-6310
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (435) 752-9067
{Item 4 was previously reported and filed and is now being amended to more
accurately reflect stipulations referred to in Item 304(a)(1)(i). This report
is filed to amend the previous report.}
Item 4. Changes in Registrant's Certifying Accountant.
On July 2, 1999, Digitran Systems, Incorporated (the "Company")
notified Tanner + Co. (the "Former Accountant") that the client-auditor
relationship had been terminated. The Former Accountant had served as the
Company's independent public accountant prior to this termination. The
Former Accountant's report on the financial statements as of and for the
years ended April 30, 1998 and 1997 was qualified with respect to the
Company's ability to continue as a going concern. There were no
disagreements with the Former Accountant as of and for the years ended April
30, 1998 and 1997 and the subsequent interim period through July 2, 1999 on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreement(s), if not
resolved to the satisfaction of the former accountant would have caused it to
make reference to the subject matter of the disagreement(s) in connection with
their report.
The Company has engaged Jones, Jensen & Company as of July 2, 1999 to
replace the Former Accountant as the Company's independent certifying
public accountant. The engagement of the new accountants was ratified by the
Company's Board of Directors at the July 1, 1999 meeting of the Board.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
16.1 Letter of consent on amendment from Tanner + Co.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of
1934, the registrant has duly caused this report to be signed on behalf by
the
undersigned hereunto duly authorized.
July 19, 1999
By:/s/ Loretta Trevers, President
----------------------------
Loretta Trevers, President
Exhibit 16.1
August 25, 1999
Office of The Chief Accountant
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Digitran Systems, Incorporated
Ladies and Gentlemen:
We were previously principal accountants for Digitran Systems,
Incorporated. And, under the date of September 11, 1998, we reported on the
consolidated financial statements of Digitran Systems, Incorporated as of and
for the years ended April 31, 1998 and 1997. On July 2, 1999, our services
were terminated. We have read Digitran Systems, Incorporated's statements
included under Item 4 of its Form 8-K/A dated July 19,999, and we agree with
such statements, except that we are not in a position to agree or disagree
with Digitran Systems, Incorporated's statement that they have engaged Jones,
Jensen & Company as independent certified public accountants and that such
engagement was ratified by the Board of Directors at the July 1, 1999 meeting.
Very truly yours,
TANNER + CO.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, Digitran Systems,
Incorporated caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 30th day of August, 1999.
DIGITRAN SYSTEMS, INCORPORATED
(Registrant)
By /s/ Loretta Trevers
- --------------------------
Its: President
In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Loretta Trevers Chairman of the Board
- -------------------------
Loretta Trevers (Chief Executive Officer,
& President) August 30, 1999
/s/ Gary Blum Director August 30, 1999
- -------------------------
Gary Blum
/s/ Phillip P. Andrews Director August 30, 1999
- -------------------------
Phillip P. Andrews
/s/ Aaron Etra Director August 30, 1999
- -------------------------
Aaron Etra
** S. Emerson Lybbert Chief Financial Officer
Corporate Secretary
** Jamie Levey Director
** Note: Scott E. Lybbert and Jamie Levey were not authorized signatories
acting as Chief Financial Officer/Corporate Secretary and Director,
respectively, as of the completion date of this Form 10-KSB.
