<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, 2000
[ ] 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)
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: 2000 -
$903,742
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 $1,746,327 at April 30, 2000, computed at the closing quotation
for the Registrant's common stock of $0.10 as of April 30, 2000.
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, 2000 there
were 22,487,174 shares of the Registrant's Common Stock and 2,600,000 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,
2000 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.
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.
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.
Sales
Revenues for the year ended April 30, 1999 were as follows:
Simulators % Support Contracts % Total %
Crane $ 386,697 41 $ 182,070 20 $ 550,767 61
Petroleum $ 267,850 30 $ 33,743 4 $ 301,593 33
Vehicle $ -0- - $ 51,382 6 $ 51,382 6
Total $ 636,547 71% $ 267,195 30 $ 903,742 100%
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:
2000 1999
Customer A 302,197 756,000
Customer B 166,577 369,000
Customer C 112,956 220,580
Customer D 91,000 126,520
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, 2000, the Company had 3 full-time employees and 4 part
time employees. As of April 30, 1998 the Company had 31 full-time and 5 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 company sold its former administrative offices located at 90 North
100 East, Logan Utah in June of 1999. In addition, the buildings located in
North Logan which were the subject of a sale-leaseback agreement dated July
1999 were sold to a third party. The sale-leaseback agreement provided for
some of the potential gain realized, in the event of a subsequent sale to a
third party, to be shared with the company. The total gain recognized by the
company due to the sale of buildings during the fiscal year was $540,238. In
conjunction with the subsequent sale of the North Logan buildings, the company
was relieved of its ten-year lease term commitment.
Virtually all other property, consisting primarily of computer equipment, has
either been sold, used to satisfy debts, or has become fully depreciated.
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 delinquent in essentially all of its obligations. The potential
resolution of these obligations could continue to 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.
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 5/16 5/32 1 3/8 41/72
2nd Quarter 5/32 7/128 3/4 1/4
3rd Quarter 1/8 1/32 19/48 7/32
4th Quarter 5/16 9/128 3/8 1/5
Shareholders
As of April 30, 2000, the Company had 790 record holders of its Common
Stock and 4 record holder of its Class B Common Stock as well as 11 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 $224,700 as of April 30, 2000. 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".
Management's Discussion
For several years now, the company has been unsuccessful in achieving
profitable operations, generating cash from operations or attracting
sufficient equity or debt financing to sustain its then current level of
operations. Consequently, the company was finally compelled to drastically
reduce its work force, sell its assets and settle its debts in any way
possible, including conversion of debt into the company's stock.
Plan of Operations
The company still has nominal operations and operating capacity. The company
is represented by sales agents throughout the world, capable engineers
construct and support the company's products on a contract basis, and the
other aspects of the business are supported by shareholders. However, because
the operations are currently as described above, the results of operations are
summarized, netted and classified as the results of discontinued operations.
The prior year's results have been reclassified also for comparability.
In November 1999 the company entered into an agreement with another company (a
non-competitor who has served the same customer base as Digitran for many
years) regarding the company's Crane and Truck simulation divisions. As of
September 15, 2000 not all of the provisions of the agreement have been
completed. The agreement, in principle calls for the other company to: (1)
provide support to the crane and truck division's product lines and customers,
(2) to satisfy certain debts of secured creditors and (3) to assist the
company in payment of its past due taxes. In return, the other company would
be entitled to the benefit from their efforts expended in those divisions,
including revenues from maintenance contracts and future simulator sales. The
company continues to support the petroleum Division and other existing
projects.
Management's Future Plans
At this point, the company's management continues to entertain all viable
potential alternatives to provide creditor satisfaction and shareholder value
including, but not limited to: mergers, acquisitions, reverse acquisitions,
joint ventures, debt -restructures, spin-offs, realization of the company's
intangible assets or value, etc. Alternatives will continue to be
distinguished and favored based upon how well it provides for the existing
creditors and shareholders.
Management's Discussion and Analysis of the Results of Operations 2000 vs.
1999. Results of Operations:
The company essentially broke even (posting net income of $11,292) for the
year vs. a loss of $2,822,371 for fiscal year 1999. The company was more
successful in scaling down its operating expenses to the anticipated levels of
revenues. The results of operations were significantly impacted in a positive
manner by the sales of the buildings and by the settlement of debts (the
absence of which would have more greatly and adversely affected the reported
results of operations).
Revenues. Net Sales for 2000 were $ 903,742 as compared to $1,956,298
in 1999 for a 53% decrease. The Crane and Truck divisions accounted for 67%
of the revenues for fiscal year 2000 versus 71% in fiscal year 1999. In spite
of Digitran's condition, there are still several active projects currently in
various stages of approval for crane, petroleum and vehicle simulators. Only a
few of these potential contract awards can change the condition of Digitran
significantly.
ITEM 7 FINANCIAL STATEMENTS
The Consolidated Financial Statements are filed as part of this Annual
Report on Form 10-KSB.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
<PAGE>
C O N T E N T S
Independent Auditors' Reports. . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations. . . . . . . . . . . . . 5
Consolidated Statements of Shareholders' Deficit . . . . . . . 6
Consolidated Statements of Cash Flows. . . . . . . . . . . . . 7
Notes to the Consolidated Financial Statements . . . . . . . . 9
<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, 2000, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for the years
ended April 30, 2000 and 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Digitran
Systems, Incorporated and Subsidiary as of April 30, 2000, and the results of
their operations and their cash flows for the years ended April 30, 2000 and
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.
HJ & Associates
Salt Lake City, Utah
September 15, 2000
<PAGE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
<CAPTION>
April 30,
2000
<S> <C>
CURRENT ASSETS
Cash $ 35,999
Accounts receivable (net of $38,300 allowance) 74,770
Total Current Assets 110,769
TOTAL ASSETS $ 110,769
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 780,771
Accrued expenses 1,610,699
Current portion of notes payable (Note 3) 698,151
Total Current Liabilities 3,089,621
LONG-TERM LIABILITIES (Note 3) -
Total Liabilities 3,089,621
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' DEFICIT
Preferred stock, $0.01 par value: 1,000,000
shares authorized, 53,650 shares issued and
outstanding, (entitled to one-tenth
vote per share) 537
Common stock, $0.01 par value: 25,000,000 shares
authorized, 22,487,174 shares issued and
outstanding (entitled to one-tenth vote per share) 224,872
Class B common stock, $0.01 par value:
5,000,000 shares authorized, 2,600,000 shares
issued and outstanding (entitled to one vote
per share) 26,000
Additional paid-in capital 10,380,683
Minority interest -
Accumulated deficit (13,610,944)
Total Shareholders' Deficit (2,978,852)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 110,769
<PAGE>
</TABLE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations
<CAPTION>
For the Years Ended
April 30,
2000 1999
<S> <C> <C>
REVENUES $ - $ -
OPERATING COSTS
Selling, general and administrative - -
Total Operating Costs - -
OPERATING LOSS - -
OPERATING LOSS BEFORE LOSS FROM
DISCONTINUED OPERATIONS - -
LOSS FROM DISCONTINUED
OPERATIONS (Note 12) (107,261) (2,854,053)
NET LOSS $ (107,261)$(2,854,053)
BASIC GAIN (LOSS) PER SHARE
Continuing operations $ (0.00)$ 0.00
Discontinued operations (0.01) (0.21)
Total Gain (Loss) Per Share $ (0.01 )$ (0.21)
WEIGHTED AVERAGE SHARES OF COMMON STOCK 16,361,144 13,479,828
</TABLE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Shareholders' Deficit
For the Years Ended April 30, 2000 and 1999
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
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
Shares issued for debt - - 73,142 731
Shares issued for debt -
Class B - - - -
Shares issued for services - - 8,276,471 82,765
Conversion of preferred
shares (2,925) (29) 10,700 107
Net loss for the year
ended April 30, 2000 - - - -
Balance at April 30, 2000 53,650 $ 537 22,487,174 $224,872
</TABLE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Shareholders' Deficit
For the Years Ended April 30, 2000 and 1999
<CAPTION>
Class B Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
<S> <C> <C> <C> <C>
Balance at April 30, 1998 2,000,000 $ 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 $ 20,000 $9,315,986 $(13,533,677)
Shares issued for debt - - 673,131 -
Shares issued for debt -
Class B 600,000 6,000 54,000 -
Shares issued for services - - 337,644 -
Conversion of preferred
shares - - (78) -
Net loss for the year
ended April 30, 2000 - - - (77,267)
Balance at April 30, 2000 1,600,000 $ 26,000 $10,380,683$(13,610,944)
</TABLE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended
April 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (77,267 )$ (2,822,371)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 62,802 148,379
Bad debt expense - 38,300
Gain on disposal of assets (504,238) -
Issuance of common stock for services 420,409 232,909
Payment of services in exchange for note
payable - 269,870
Changes in operating assets and liabilities:
Decrease in accounts receivable 173,848 8,082
Decrease in inventory 68,486 627,514
Increase in accounts payable and other
current liabilities 178,282 1,161,976
Net Cash Used In Operating Activities 322,322 (335,341)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 94,600 409,396
Purchase of property and equipment - (37,168)
Net Cash Provided In Investing
Activities 94,600 372,228
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 245,000 624,468
Payments on notes payable (632,466) (951,812)
Issuance of common stock - 232,000
Net Cash Used by Financing Activities$(387,466) $ (95,344)
</TABLE>
<TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
<CAPTION>
For the Years Ended
April 30,
2000 1999
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 29,456 $ (58,457)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 6,543 65,000
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 35,999 $ 6,543
</TABLE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 2000 and 1999
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 Digital Simulation Systems, Inc., a 95%-owned
subsidiary. During the year, the Company disposed of all of its
fixed assets and operations except for its petroleum services
operations. Essentially, the Company discontinued its operations.
Going Concern
The Company has suffered recurring losses from operations and has a
shareholders' deficit of $13,610,944 as of April 30, 2000. The
Company plans are to merge with an existing operating company.
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.
Principles of Consolidation
The accompanying consolidated financial statements include Digitran
Systems, Incorporated, and its wholly-owned subsidiaries, Digitran,
Inc. and Digital 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.
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
contracts with other entities to complete the project. As of April
30, 2000 and 1999, there were no significant contracts in progress.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 2000 and 1999
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.
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, 2000 and 1999
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 1999 financial statements have been
reclassified to conform with the current year presentation.
NOTE 2 - RELATED PARTY TRANSACTIONS
At April 30, 2000, the Company included approximately $74,000 of
advances and commissions payable to a shareholder/officer.
NOTE 3 - NOTES PAYABLE
Notes payable at April 30, 2000 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. $ 389,135
Note payable to investors with interest at a rate from 12% to
24% due on demand. 309,016
Less current portion 698,151
Long-term debt $ -
Future maturities of notes payable are as follows:
Year Ending Amount
2000 $ 698,151
2001 -
2002 -
2003 -
2004 -
Thereafter -
$ 698,151
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 2000 and 1999
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
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.
The Series 1 Class A 8% Cumulative Convertible Preferred Stock has a
par value of $0.01 per share. As of April 30, 2000, there were
53,650 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 2000 and
1999 of approximately $210,256 and $190,090, respectively, or $3.92
and $3.36 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 upon notice to each preferred
stockholder 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 5 - INCOME TAXES
The income tax benefit differs from the amount computed at federal
statutory rates as follows:
For the Years Ended
April 30,
2000
1999
Income tax benefit at statutory rate $ 26,000 $
993,800
Change in valuation allowance (26,000 )
(977,000
)
Life insurance and meals - (16,800 )
$ - $
-
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 2000 and 1999
NOTE 5 - INCOME TAXES (Continued)
Deferred tax assets (liabilities) at April 30, 2000 are comprised of
the following:
Net operating loss carryforward $
4,376,900
Depreciation -
Accrued commission -
Valuation allowance (4,376,900)
$
-
At April 30, 2000, the Company has a net operating loss carryforward
available to offset future taxable income of approximately
$12,828,000, 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. No tax benefit had been reported in the financial
statements, because the Company believes there is a 50% or greater
chance the carryforwards will expire unused. The tax benefits of
the loss carryforwards are offset by a valuation allowance of the
same amount.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Financing Activities
For the Years Ended
April 30,
2000
1999
Issuance of stock for services $ 420,409 $
234,369
Common stock issued for payment of debt 733,862 118,150
Notes payable issued for services rendered -
204,414
Services rendered for payment of notes
payable - 1,028,476
Total $ 1,154,271 $
1,585,409
During the year ended April 30, 2000, the Company converted 2,925
shares of preferred stock to 10,700 shares of common stock in
accordance with the preferred stock conversion feature.
For the Years Ended
April 30,
2000
1999
Interest paid $ 94,217 $
113,261
Income taxes paid $ - $
-
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 2000 and 1999
NOTE 7 - MAJOR CUSTOMERS AND EXPORT SALES
Sales to major customers which exceeded 10% of net sales are as
follows:
For the Years Ended
April 30,
2000
1999
Company A $ - $
756,000
Company B $ - $
369,555
Company C $ - $
220,580
Company D $ - $
126,520
Company E $ 302,197 $
-
Export sales to unaffiliated customers were as follows:
For the Years Ended
April 30,
Region 2000
1999
North America (excluding the U.S.) $ 357,000 $
756,000
Asia 133,000 220,580
Australia - 369,555
$ 490,000 $
1,346,135
NOTE 8 - 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, 1999 3,745,345 $
0.25 - 2.25
Granted 170,000 0.07
Exercised (635,850 )
0.07 - 1.00
Expired or canceled (1,888,533 )
2.25
Outstanding at April 30, 2000 1,390,962 $
0.25 - 1.08
Options and warrants exercisable at April 30, 2000 and 1999 are
1,390,962 and 3,745,345, respectively.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 2000 and 1999
NOTE 9 - 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
2000 and 1999 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:
For the Years Ended
April 30,
2000
1999
Net loss applicable to common stock -
as reported $ - $
(2,889,186
)
Net loss applicable to common stock -
pro forma $ - $
(2,899,811
)
Loss per share - as reported $ - $
(0.22
)
Loss per share - pro forma $ - $
(0.22
)
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,
2000
1999
Expected dividend yield $ - $
-
Expected stock price volatility - 0.01%
Risk-free interest rate - 5.0%
Expected life of options - 3 years
The weighted average fair value of options granted during 1999 was
$0.92.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 2000 and 1999
NOTE 10 - 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. A Judgment was rendered at that time in
the amount of $13,000,000. This 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 (the Company) 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.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
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, if any, action the IRS may pursue regarding the collection of
these taxes.
<PAGE>
DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 2000 and 1999
NOTE 12 - DISCONTINUED OPERATIONS
The following is a summary of the loss from discontinued operations
resulting from the elimination of the operations. The financial
statements have been retroactively restated to reflect this event.
No tax benefit has been attributed to the discontinued operations.
For the Years
Ended
2000 1999
NET SALES $ 903,742 $
1,956,298
COST OF SALES 483,459
1,934,904
GROSS PROFIT 420,283 21,394
EXPENSES
Selling, general and administrative expenses 679,451
2,584,005
Depreciation and amortization 62,802 148,379
Bad debt expense - 38,300
Total Expenses 742,253
2,770,684
LOSS FROM OPERATIONS (321,970 )(2,749,290
)
OTHER INCOME (EXPENSE)
Interest expense (259,535 )
(490,755 )
Gain on disposal of assets 504,238 417,674
Total Other Income (Expense)
244,703 (73,081 )
LOSS BEFORE INCOME TAXES (77,267 )(2,822,371
)
INCOME TAX BENEFIT - -
NET LOSS (77,267 )
(2,822,371 )
OTHER COMPREHENSIVE INCOME (LOSS)
Dividends on convertible preferred stock; unpaid (29,994 )
(31,682 )
Total Other Comprehensive Income
(Loss) $ (107,261 )$ (2,854,053 )
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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 51 President and Chairman of the
Board
Gary Blum 59 Director
Aaron Etra 59 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.
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.
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended.
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).
None
At the beginning of the year, the Company owed Loretta Trevers
$42,540.50 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 and conversions
to
common stock throughout the year. At April 30, 2000 the Company owed Ms.
Trevers approximately $35,000 in outstanding expenses, monies owed and
interest.
Other Items
There were no exercises of stock options (or tandem stock
appreciation
rights) and freestanding appreciation rights (or unexercised options or
stock
appreciation rights) made during the fiscal year ended April 30, 2000 by
any
Named Executive Officer. The following table represents outstanding
options
by officers of the Company:
Options and Stock Issuances
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
(a) (b) (c) (d)
(e)
Value
of
Number of
Unexercised
Unexercised
In-the-Money
Options/SARs
Options/SARs
at FY-End (#) at
FY-End
($)
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 $
0/0
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, 2000 or 1999.
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.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 30, 2000 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.
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
Loretta P. Trevers*
2176 North Main
N. Logan, UT 84341 2,205,973 9.80% 1,800,000
Loretta P. Trevers*
Trevers Trust/Trust Accounts
2176 North Main
N. Logan, UT 84341 1,869,000(1) 8.31% 800,000
Robert H. Jaffe
8 Mountain Avenue
Springfield, NJ 1,513,050 6.72%
0
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 1,301,904 5.78% 0
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 535,480 2.38% 0
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 427,100 1.90% 0
All executive officers
and directors as a
group (3 persons) 3,168,559 14.08%
2,600,000
Name and Percent of Number and
Address of Outstanding Percent of
Beneficial Shares of Outstanding Percent
of
Owner\Identity Class B Shares of Total
Voting
of Group Common stock Preferred stock Power
Loretta P. Trevers*
2176 North Main
N. Logan, UT 84341 69% 0 41.67%
Loretta P. Trevers*
Trevers Trust/Trust Accounts
2176 North Main
N. Logan, UT 84341 31% 0 20.35%
Robert H. Jaffe
8 Mountain Avenue
Springfield, NJ 0 0
3.10%
Clayton Paul Hilliard
P.O. Box 52745
Lafayette, LA 70505 0 0 2.61%
Gary Blum*
3278 Wilshire Blvd, #603
Los Angeles, CA 90010 0 0 1.10
Aaron Etra*
1350 Avenue/Americas
29th Floor
New York, NY 10021 0 0 **
All executive officers
and directors as a
group (3 persons) 69% 0 43.67%
*Indicates current officer or director of the Company.
(1) Includes 920,000 shares of Common Stock and 800,000 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
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Digitran Systems, Inc.
Logan, Utah
We hereby consent to the use of our audit report dated September 17, 2000
in
this Form 10KSB of Digitran Systems, Inc. for the year ended April 30,
2000,
which is part of this Form 10KSB and all references to our firm included
in
this Form 10KSB.
HJ & Associates
Salt Lake City, Utah
September 15, 2000
Signatures
/s/ Loretta Trevers Chairman of the Board
-------------------------
Loretta Trevers (Chief Executive Officer,
& President) September 15,
2000
/s/ Gary Blum Director September 15,
2000
-------------------------
Gary Blum
/s/ Aaron Etra Director September 15,
2000
-------------------------
Aaron Etra
