<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
UNITED STATES
SECURIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-QSB
__________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended October 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-11034
DIGITRAN SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 72-086167
(State or other jurisdiction of (IRS) employer
incorporation or organization) identification No.)
2176 North Main, P.O. Box 6310, North Logan, UT 84341-6310
(Address of principal executive offices and zip code)
(435) 752-9067
(Registrant's telephone number, including area code)
Not applicable
(Former name, address, and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1999
Common stock, $.01 par value 15,032,481
Class B Common stock, $.01 par value 2,000,000
Transitional Small Business Disclosure Format (Check one)
Yes No X
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet
as of Oct 31. 1999 3
Unaudited Condensed Consolidated Statements of
Operations, for the three month periods ended
Oct 31, 1999 and 1998 4
Unaudited Condensed Consolidated Statements of Cash
flows, for the six month periods ended
Oct 31, 1999 and 1998 5
Notes to Unaudited Condensed Consolidated Interim
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation 9
PART II. OTHER INFORMATION 11
SIGNATURES 12
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DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<CAPTION>
October 31, 1999
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,084
Accounts receivable 469,174
Inventories 53,010
Total Current Assets 525,268
Property, Plant, and Equipment (Net) 60,632
$ 585,900
LIABILITIES AND STOCK HOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 3,016,951
Short Term Notes Payable 1,494,919
Total Current Liabilities 4,511,870
Long Term Notes Payable $ 149,114
Total Liabilities $ 4,660,984
Shareholder's Deficit
Preferred Stock $ 566
Common Stock 142,701
Class B Common Stock 20,000
Additional Paid-in Capital 9,449,314
Retained Earnings (Deficit) (13,704,345)
Total Shareholder's Deficit (4,075,084)
Total Liabilities & Shareholder's
Deficit $ 585,900
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended October 31, Six months Ended October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES $378,438 $ 196,000 $ 670,082 $ 801,000
COST OF GOODS SOLD $ 93,583 $ 399,000 $ 165,492 $ 758,000
GROSS PROFIT OR (LOSS)$284,855 $ (203,000) $ 504,519 $ (43,000)
EXPENSES
Selling, general and
administrative
expenses $229,559 $ 493,000 $ 842,339 $ 1,180,000
Depreciation and
Amortization $ 21,973 $ 45,000 $ 62,601 $ 90,000
OPERATING INCOME $ 33,323 $ (741,000) $ 400,350 $(1,227,000)
OTHER INCOME (EXPENSE)
Interest $(97,859) $ (131,000) $ 167,685 $ (261,000)
Litigation
Settlement Cost &
Inventory Write Down$ $ $ $
Gain on Sale of Real
Estate $ (2,100) $ $ 367,344 $ 416,000
Other $ 15,000 $ $ 15,000 $
INCOME (LOSSES) BEFORE
INCOME TAX $(51,636) $ (872,000) $ (170,668) $(1,072,000)
INCOME TAXES $ 0 $ 0 $ $
NET INCOME (LOSS) $(51,636) $ (872,000) $ (170,668) $(1,072,000)
LESS CURRENT UNPAID
DIVIDENDS ON PREFERRED
STOCK $ (7,920) $ (26,000) $ (15,840) $ (26,000)
NET LOSS APPLICABLE TO
COMMON SHARES $(59,556) $ (893,000) $ (168,508) $(1,098,000)
LOSS PER SHARE
APPLICABLE TO COMMON
STOCK $ (0.004) $ (.07) $ (0.007) $ (0.10)
WEIGHTED AVERAGE
COMMON STOCK AND COMMON
STOCK EQUIVALENTS
OUTSTANDING 15,032,481 13,093,511 15,032,481 13,093,511
</TABLE>
The accompanying notes are an integral part of these financial statements
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended October 31,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss $ (178,588) $(1,072,000)
Adjustments to reconcilement loss to net cash
Provided by (used in) operating activities:
Depreciation and Amortization 62,601 90,000
Issuance of common stock for services
and litigation settlement 0 143,000
(Increase) Decrease in:
Accounts Receivable (220,456) (26,000)
Inventory 15,476 87,000
Costs & Earning in excess of billings 0 0
Other current assets 0 0
Increase (Decrease)in:
Accounts Payable and other Current
liabilities (284,975) 437,000
Billing in excess of costs 0 0
Net Cash Used in Operating Activities $ (157,539) $ (341,000)
Cash Flows From Inventory Activities
Purchase of property and equipment $ (19,496) $ (5,000)
Net Cash Used in Investing Activities $ (19,496) $ (5,000)
Cash Flows From Financing Activities
Proceeds from stock - conversion of debt $ 109,914 $ 0
Proceeds from Stock Offering 0 220,000
Proceeds from short term borrowing 230,000 565,000
Payments on short term borrowing (425,000) (784,000)
Proceeds from long term borrowing 0 649,000
Payments on long term borrowing (104,110) (764,000)
Net Proceeds from sale of buildings 367,344 409,000
Net Cash Provided by Financing Activities $ 178,148 $ 295,000
Net Increase (Decrease) in Cash (3,459) (51,000)
Cash Beginning of Period 6,543 65,000
Cash End of Period $ 3,084 $ 14,000
</TABLE>
The accompanying notes are an inegral part of these financial statements
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
NOTE 1 CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all material adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position at October 31, 1999 and the results of operations and cash
flows for the three month periods ended October 31, 1999 and 1998 have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's April 30, 1999 audited
financial statements. The results of operation for the periods ended October
31, 1999 and 1998 are not necessarily indicative of the operating results for
the respective full years.
The simulator products which are marketed by the Company sell at a very high
price in comparison to the total annual sales of the Company. This
relationship leads to individual sales having a disproportionately large
effect on total sales. Therefore, sales within a quarter can lead to highly
volatile results of operations for individual quarters. The results for
individual quarters may not be indicative of annual results. All quarterly
information should be considered in light of the last fiscal year and the
current year to date operations of the Company. Furthermore, due to the fixed
nature of certain coast of revenues, the gross margins on relatively low
revenue volumes will be lower than otherwise expected.
NOTE 2 COMMITMENTS AND CONTIJGENCIES
In the normal course of business, there may be various other legal actions
and proceedings pending which seek damages against the Company.
Going Concern
The accompanying financial statements have been presented on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred
recurring operating losses, has a deficit in working capital, and has an
accumulated earnings deficit.
The company has been unable to qualify for traditional lines of credit.
However, the Company has been able to obtain short term borrowings and lines
of credit from related parties, a local government agency, and a financial
institution which have been backed by certain Company receivables.
The Company's continued existence is dependent upon its ability to focus on
operational considerations in order to maintain the growth in sales
opportunities and continue bringing to fruition a number of the sales
proposals currently outstanding to potential customers. Management plans to
continue focusing its time, attention and financial resources on operational
considerations.
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DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Other Items
In the normal course of business, there may be various other legal actions
and proceedings pending which seek damages against the Company.
NOTE 3 CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with oil companies, port
authorities, training institutions and various other entities, often outside
the United States. Normally, the Company attempts to secure shipments outside
the United States through letters of credit and/or progress payments.
In cases for which shipments are made on open accounts, the Company retains
title or ownership claims to the equipment shipped by terms of its contracts
or agreements until significant payment has been secured.
NOTE 4 CAPITAL STOCK
The Company's capital stock consists of common stock, Class B common stock,
and preferred stock. The common stock provides for a non-cumulative, $.05 per
share annual dividend and a $.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 %.05 is paid on the common stock. Holders of Class B common have
preemptive rights with respect to the Class B common stock and may convert
each share of Class B common into one share of the common stock at any time.
Holders of Class B common are entitled to one vote per share held.
The Series 1 Class A 8% Cumulative Convertible Preferred Stock has a par
value of $.01 per share. As of October 31, 1999 there were 56,575 shares
outstanding.
The overwhelming majority of Preferred shareholders have converted their
Preferred shares into Common shares. This is because it appears likely that
the Common stock share price will appreciate faster than the Company's ability
to overcome its accumulated deficit. There are currently insufficient
preferred shares remaining for them to trade publicly. The Preferred share's
characteristics are described below:
Holders of preferred shares are entitled to cumulative dividends of 8% per
annum on the stated value of the stock, designated as $7 per share. Holders
of Preferred Stock are entitled to receive cumulative dividends at the annual
rate of $.56 per share, payable semi-annually on September 15 and March 15.
The Company paid dividends of $27,362 for September 15, 1992 and $136,682 for
March 14, 1993. No dividends have been paid since March 15, 1993 resulting in
dividends in arrears of approximately $205,590. The future payment of
dividends on the Preferred Stock is dependent on cash flow from operations and
potential reduction in dividend liability through conversion of preferred
shares for common shares. There may be legal restrictions on the payment of
dividends for periods in which losses are incurred and/or the Company has an
accumulated deficit.
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DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Dividends are not payable on any other class of stock ranking junior to the
preferred stock until the full cumulative dividend requirements of the
preferred stock have been satisfied. The preferred stock carries a
liquidation preference equal to its stated value plus any unpaid dividends.
Subject to certain registration requirements, convertibility of any preferred
stock issued may be exercised at the option of the holder thereof at two
shares of common stock for each preferred share converted. Holders of the
preferred stock are entitled to one tenth of a vote for each share of
preferred stock held. The Company may, at its option, redeem at any time all
shares of the preferred stock or some of them on notice to each holder of
prefered 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.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
PART 1 FINANCIAL INFORMATION
ITEM 2 Management's Discussion and Analysis of Financial Condition or Plan of
Operations.
Management's Future Plans
Financing
To allow the Company to move foreard, 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 Minimum
Senior Debt 1,500,000
Line of Credit 500,000
Total $5,000,000
(1) 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 350,000
Product Development 150,000
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
New Product Development
The Company is developing variations to its larger scale products. As computer
components become increasingly more capable and less expensive, development of
smaller, personal computer-based simulators become more feasible. Also,
mid-sized simulators are being developed for those customers who need
simulated training, but can't afford or don't need, all the features available
on current models.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
Results of Operations. Six months ended October 31, 1999 vs 1998
Sales. Sales were adversely affected throughout the year and during this
quarter by the following:
A. Lack of cash resources. The Company could not take advantage of all
potential sales opportunities due to the lack of available resources
at various times throughout the year.
B. Instability in the global economy. The Company saw several
significant potential projects eliminated or deferred by their
customers, due to uncertainties with the customer's currency,
national economy, or other political issues.
C. Drop in Petroleum Industry prices. Softness in the oil industry has
also led to the postponement of several sizeable projects from those
customers.
D. Lack of alternative product offering. Consequently, the Company is
developing smaller and mid-sized products in order to increase its
sales and service market.
Cost of Sales. Cost of sales will appear to be unusually high for the current
period when compared to the previous period. This is because the Company's
management has chosen to report its results from operations in a very
conservative manner. Cost of sales consists of two major expense categories:
(1) Cost of Parts and Components (variable by item sold)
(2) Engineering and Production Labor (fixed by paypaeriod)
Manufacturing overhead is negligible. Consequently, gross mergins will be
adversely affected when sales levels are below the breakeven point. Gross
margins could possibly be negative if sales do not exceed the Company's fixed
commitment to Engineering and Production labor. This change in presentation
is part of a concerted effort by management to simplify its accounting
practice and to eliminate practices that involve or create intangible asets.
Selling, General and Administrative. The company substantially cut all
expenses across the company.
Interest. Interest increased 45% due to paying off debt through the sale of
the Library building.
PART II OTHER INFORMATION. The company on October 12, 1999, entered into an
agreement to sell the crane and truck product lines to Ship Analytics. This
will pay the IRS and certain secure creditors.
ITEM 1 Legal Proceedings
See "Note 2 Commitments and Contingencies".
ITEM 2 Changes in Securities
During this quarter, 761,434 shares of common stock were issued to
consultants, suppliers, and employees, for services rendered.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
ITEM 3 Defaults on Senior Securities
Holders of Series 1 Class A 8% Cumulative Convertible Preferred Stock are
entitled to receive cumulative dividends at the annual rate of $.56 per share,
payable semi-annually on September 15 and March 15, beginning September 15,
1993 resulting in aggregate dividends in arrears of $205,590.
ITEM 4 Submission of Matters to a Vote of Security Holders
None
ITEM 5 Other
None
ITEM 6 Exhibits and reports on Form 8-K
(a) Exhibits: None
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Digitran Systems, Incorporated
Registrant
Dated October 31, 1999 By:/s/Loretta Trevers
By: Loretta Trevers
(President, Chairman & Chief Executive
Officer)
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 3084
<SECURITIES> 0
<RECEIVABLES> 469174
<ALLOWANCES> 0
<INVENTORY> 53010
<CURRENT-ASSETS> 525268
<PP&E> 123233
<DEPRECIATION> 62601
<TOTAL-ASSETS> 585900
<CURRENT-LIABILITIES> 4511870
<BONDS> 0
0
566
<COMMON> 162701
<OTHER-SE> (4255031)
<TOTAL-LIABILITY-AND-EQUITY> 535900
<SALES> 670082
<TOTAL-REVENUES> 670082
<CGS> 165492
<TOTAL-COSTS> 165492
<OTHER-EXPENSES> 904940
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<INTEREST-EXPENSE> 167685
<INCOME-PRETAX> (170668)
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<INCOME-CONTINUING> (170668)
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<NET-INCOME> (170668)
<EPS-BASIC> (.007)
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</TABLE>
