U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A (Number 1)
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ________________to_______________
Commission file number: 0-27704
DIGITAL DATA NETWORKS, INC.
(Name of small business issuer in its charter)
Washington 91-1426372
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3102 Maple Avenue, Suite 230
Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
(214) 969-7200
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value Common Stock Purchase Warrants
(Title of class) (Title of class)
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 there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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. [ ]
The issuer's revenues for its most recent fiscal year were $889,000.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on April 8, 1998 was approximately $2,828,321.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of April 8, 1998, 2,314,597 shares
of Common Stock and 1,840,000 Common Stock Purchase Warrants were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None.
<PAGE>
INTRODUCTORY NOTE
This Annual Report on Form 10-KSB/A provides all of the Part III
information not originally included in the Company's Annual Report on Form
10-KSB.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
DIRECTORS AND EXECUTIVE OFFICERS
Information regarding the executive officers and directors of the
Company as of April 30, 1998 is as follows:
Name Age Position with the Company
- ---- --- -------------------------
Donald B. Scott, Jr. 43 President and
Chairman of the Board
James F. Biagi, Jr. 41 Secretary and Director
Robert F. Hussey 49 Director
Jerry L. Smith 57 Director
Richard J. Boeglin 40 Vice President,
Finance and Operations
Chief Financial Officer
Susan E. Hassel 51 Vice President, Sales
Peter V. Ciccone 52 Chief Operating Officer
(1)
- ----------------
(1) In September 1998, Pro Net Communications Inc., a company in which Mr.
Ciccone is a principal, acquired the assets of the Company's Canadian operation,
at which time Mr. Ciccone left the Company and resigned his position as Chief
Operating Officer.
The names and a brief description of their business experience for at
least the past five years of the directors and executive officers of the Company
follows:
Donald B. Scott, Jr. has served as President and a director of the
Company since March 1993. In July 1996, Mr. Scott was also elected as the
Company's Chairman of the Board. Mr. Scott served as the Company's Acting
President from December 1992 through March 1993. Mr. Scott was previously a
principal of Rutkowski, Erickson, Scott ("RES"), a consulting firm, from 1991 to
July 1995. Prior to his association with RES, Mr. Scott was with Paine Webber in
New York from 1987 to 1991.
James F. Biagi, Jr. has served as Secretary and a director of the
Company since its inception in 1988. He is a practicing attorney in Seattle,
Washington, and has been a principal of the law firm Monahan & Biagi since March
1996. Prior to Monahan & Biagi, Mr. Biagi practiced law at the firm Monahan &
Robinson since 1989, where he has specialized in tax, corporate and securities
matters.
<PAGE>
Robert F. Hussey has served as a director of the Company since November
1997. Mr. Hussey was President and CEO of MetroVision of North America, Inc., a
niche cable television company, from February 1991 until April 1997, when it
merged with York Hannover Health Care, Inc. Mr. Hussey has been a director of
IVEX Corporation since May 1993 and Nur Macroprinters Ltd. since December 1997,
as well as on the board of advisors for Kaufmann Fund since December 1996,
Argentum Capital Partners, I and II since June 1990, and Josephthal & Company,
Inc. since December 1997.
Jerry L. Smith has served as a director of the Company since November
1997. Mr. Smith has been the president of Gateway Group, Inc., a merger,
acquisition and investment banking firm specializing in the sale of
manufacturing, distribution and service companies in the $3 million to $30
million range, since 1985. Since October 1997, he has also been the President
and a director of Bio-Preserve International Corporation, which is engaged in
the research and development of organ preservation device technology.
Richard J. Boeglin has served as Vice President of Finance and
Operations and the Chief Financial Officer since April 1995. He has been with
the Company since 1991. He has eleven years of management experience, including
direct management of transit system design, development and installation. From
1987 to 1991, Mr. Boeglin worked in the outdoor advertising industry.
Susan E. Hassel has served as Vice President of Sales since she started
with the Company in April 1992. She has fifteen years of sales and marketing
experience. From 1985 until 1991, Ms. Hassel was the Director of Sales and
Marketing for The Relocation Center, a relocation counseling company in Dallas,
Texas.
Peter V. Ciccone has served as the Chief Operating Officer since July
1997. He has been with the Company since June 1996, when the Company acquired
Pro.Net Communications, Inc., subsequently renamed DDN Digital Data Networks
(Canada), Inc. ("DDN Canada"), where he has been president since April 1994 when
he co-founded the company. Mr. Ciccone has also been president since 1992 of PVC
Investments Ltd., a consulting and investment company.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and officers, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by SEC
regulations promulgated pursuant to the Exchange Act to furnish the Company with
copies of all Section 16(a) report forms they file with the SEC.
The Company's registration statement under Section 12 of the Exchange
Act became effective February 13, 1996. Based solely on its review of the copies
of report forms received by it with respect to initial filings from reporting
persons, the Company believes that all filing requirements applicable to its
directors, officers and persons who own more than 10% of a registered class of
the Company's equity securities have been timely complied with in accordance
with Section 16(a) of the Exchange Act.
<PAGE>
Item 10. Executive Compensation.
The following table sets forth certain information regarding cash and non-cash
compensation paid by the Company during each of the Company's last three fiscal
years to the Company's Chief Executive Officer and the other most highly
compensated executive officer of the Company whose annual compensation exceeded
$100,000 during the fiscal year ended December 31, 1997 (the "Named Persons").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- Awards
------
Name and Securities
Principal Position Year Salary Bonus Underlying Options
- ------------------ ---- ------ ----- ------------------
<S> <C> <C> <C> <C>
Donald B. Scott, Chairman 1997 $150,500 $ -0- -0-
of the Board and President 1996 144,000 74,872 60,000 (1)
1995 120,000 74,558 44,723
Susan E. Hassel, V.P. Sales 1997 $115,641 $ -0- -0-
1996 129,637 -0- 15,000 (2)
1995 114,790 -0- 559
</TABLE>
- ----------------
(1) These options vest on a pro-rata basis over a 24-month period commencing
July 1, 1996.
(2) These options vest on a pro-rata basis over a 24-month period commencing
December 1, 1996.
No options were granted to the Named Persons during the fiscal year ended
December 31, 1997.
No options were exercised by the Named Persons during the fiscal year ended
December 31, 1997. The following table sets forth information with respect to
the value of unexercised options held by the Named Persons at December 31, 1997.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options
Fiscal At Fiscal Year-End
Name Year-End (1) (1)
--- ---
Donald B. Scott, President 156,408 $ 58,653
Susan E. Hassel, V.P. Sales 27,856 $ 10,446
(1) All options were exercisable on December 31, 1997. The value of unexercised
options is based on the market value of the Company's Common Stock on
December 31, 1997, of $.625 per share.
<PAGE>
COMPENSATION OF DIRECTORS
No director received cash compensation for serving as a director in
1997. Messrs. Hussey and Smith received options to purchase 110,000 shares of
Common Stock (with 25,000 of those options vesting over a 12-month period
commencing December 16, 1997), with an exercise price of $.25 per share in
connection with their elections as directors in November 1997. Additionally, Mr.
Biagi received 10,000 options to purchase Common Stock at an exercise price of
$.25 per share in connection with his service as a director.
On April 1, 1996, the Company entered into a Contract for Services with
Stephen R. Willey, a principal shareholder in DDN Canada. Mr. Willey served as a
director of the Company from August 1996 through September 1997. This Contract
for Services requires Mr. Willey to create and execute a strategic business plan
for DDN Canada, to direct the daily activities of DDN Canada, to identify and
actively pursue potential acquisitions for the Company, and to assist the
President of the Company in appropriate activities. In consideration of these
services, the Company issued 10,000 shares of the Company's Common Stock to Mr.
Willey. This Contract for Services expired on April 1, 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 14, 1998, by (i)
each person or entity who beneficially owns 5% or more of the Common Stock, (ii)
each director, (iii) the Named Persons, and (iv) all officers and directors of
the Company as a group. Unless otherwise noted, the persons and entities named
below have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
Name of Total Beneficial Ownership Percent of Class Beneficially
Beneficial Owner (including options) Owned as of December 1, 1998
- ---------------- ------------------- ----------------------------
<S> <C> <C>
Donald B. Scott, Jr., Chairman of
the Board and President 168,001 (1) 5.5%
James F. Biagi, Jr., Secretary and Director 89,133 (2) 2.9%
Robert F. Hussey, Director 97,500 (3) 3.6%
Jerry L. Smith, Director 97,500 (4) 3.6%
Susan E. Hassel, V.P. Sales 25,850 (5) .9%
All Executive Officers and Directors 572,137 (6) 18.5%
as a group (7 persons)
- -----------------------
</TABLE>
(1) Includes options to purchase 156,408 shares, and 750 Common Stock
Purchase Warrants exercisable within 60 days.
(2) Includes options to purchase 89,133 shares exercisable within 60
days.
(3) Includes options to purchase 97,500 shares exercisable within 60
days.
(4) Includes options to purchase 97,500 shares exercisable within 60
days.
(5) Includes options to purchase 24,731 shares exercisable within 60
days.
(6) Includes options to purchase 519,997 shares exercisable within 60
days.
Item 12. Certain Relationships and Related Transactions.
In December 1994, Bruce S. Glant, a former director of the Company,
filed a lawsuit against the Company for payment of a demand note in the
principal amount of approximately $53,000 plus interest. Pursuant to a
Settlement Agreement dated as of April 21, 1995, the Company agreed to pay Mr.
Glant $5,000 upon execution of the Settlement Agreement and $2,000 per month
thereafter until the note was paid in full. The Company also granted to Mr.
Glant (i) the right to implement the digital information network technology in
the greater Seattle, Washington market, and (ii) warrants to purchase 11,181
shares at $8.94 per share for five years. Mr. Glant directed 1,118 of such
warrants to be issued to each of the two managers in the Company's Dallas
office. The Company paid the outstanding balance of $37,757 upon conclusion of
its public offering in February 1996.
In June 1996, in consideration for acquiring all of the outstanding
capital stock of Pro.Net Communications, Inc. (aka DDN Canada), the Company
issued 100,000 shares of the Company's Common Stock to shareholders of DDN
Canada, including 28,500 shares to Peter Ciccone, the Company's Chief Operating
Officer, and 28,500 shares to Stephen R. Willey, who was appointed a director of
the Company in August, 1996 to fill the vacancy created by the resignation of
Ronald P. Erickson, former chairman of the board of directors. Mr. Willey
resigned as a director in September 1997.
In June 1996, in consideration for acquiring all of the outstanding
capital stock of Cyber America Corporation, the Company issued 23,750 shares of
the Company's Common Stock to Simon D. Liebman and Joseph S. Rutkowski, and
2,500 shares of the Company's Common Stock to Richard S. Rutkowski, Cyber
America's three principal shareholders. Richard F. Rutkowski, who at the time of
the transaction was the Company's treasurer and a director, is the brother of
Joseph S. Rutkowski and son of Richard S. Rutkowski.
The Company believes that the foregoing transactions with its officers
and directors were on terms no less favorable than could have been obtained from
independent third parties. All future transactions with such persons will also
be on terms no less favorable than could be obtained from independent third
parties and will be approved by a majority of the independent, disinterested
directors.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIGITAL DATA NETWORKS, INC.
(Registrant)
By: /s/ Donald B. Scott, Jr.
Donald B. Scott, Jr., Chairman of the Board
and President
Date: December 18, 1998
