-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AuZsNKSwAUSmfFh+L5FJHzNBJtEnAm7XItLwEZ3VL8eLYen5PWkPwXeU2sF/Am25 c9i8ZrV67ob6HUY54FkSqw== 0000096313-99-000070.txt : 19990409 0000096313-99-000070.hdr.sgml : 19990409 ACCESSION NUMBER: 0000096313-99-000070 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITRAN SYSTEMS INC /DE CENTRAL INDEX KEY: 0000876134 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 720861671 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19470 FILM NUMBER: 99589723 BUSINESS ADDRESS: STREET 1: 2176 NORTH MAIN CITY: LOGAN STATE: UT ZIP: 84341-1739 BUSINESS PHONE: 8017529067 MAIL ADDRESS: STREET 1: 2176 NORTH MAIN CITY: LOGAN STATE: UT ZIP: 84341-1739 10QSB 1 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-QSB --------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended January 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 72-0861671 (State of other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 2176 North Main, P.O. Box 6310, North Logan, UT 84341-631 (Address of principal executive offices and zip code) (435) 752-9067 (Registrant's telephone number, including area code) Not applicable (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at January 31, 1999 - ----------------------------------------- ------------------------------- Common stock, $.01 par value 13,641,379 Class B Common stock, $.01 par value 2,000,000 Transitional Small Business Disclosure Format (Check one) Yes No X 1 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheet as of January 31, 1999 3 Unaudited Condensed Consolidated Statements of Operations, for the three month and nine month periods ended January 31, 1999 and 1998 4 Unaudited Condensed Consolidated Statements of Cash Flows, for the three month and nine month periods ended January 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 10 2 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES PART I FINANCIAL INFORMATION - ----------------------------- ITEM 1 FINANCIAL STATEMENTS ------ -------------------- DIGITRAN SYSTEMS, INCORPORATED and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) January 31, 1999 ASSETS CURRENT ASSETS Cash and cash equivalents $ 18,000 Accounts receivable 834,000 Inventories 82,000 ------------------ Total Current Assets $ 934,000 Property, Plant, and Equipment (Net) 342,000 ------------------ Total Assets $ 1,276,000 ================== LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 2,051,000 Short Term Notes Payable 1,009,000 ------------------ Total Current Liabilities $ 3,060,000 ------------------ Long Term Notes Payable $ 980,000 ------------------ Commitments and Contingencies - Shareholder's Deficit Preferred Stock 1,000 Common Stock 136,000 Class B Common Stock 20,000 Additional Paid-in Capital 9,157,000 Retained Earnings (Deficit) (12,078,000) ------------------ Total Shareholder's Deficit (2,764,000) ------------------ $ 1,276,000 ================== The accompanying notes are an integral part of these financial statements. 3 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES DIGITRAN SYSTEMS, INCORPORATED and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended January 31, Nine months Ended January 31, ^1999 ^1998 ^1999 ^1998 --------------------------------------------------------------------------------- NET SALES $ 1,030,000 $ 852,000 $ 1,831,000 $ 2,487,000 COST OF GOODS SOLD 802,000 529,000 1,560,000 1,457,000 --------------------------------------------------------------------------------- GROSS PROFIT OR (LOSS) $ 228,000 $ 323,000 $ 271,000 $ 1,030,000 EXPENSES Selling, general and administrative expenses $ 372,000 $ 240,000 $ 1,553,000 $ 986,000 Depreciation and Amortization 45,000 25,000 134,000 75,000 ------------------------------------------------------------------------------ OPERATING INCOME $ (189,000) $ 58,000 $ (1,416,000) $ (31,000) OTHER INCOME (EXPENSE) Interest $ (106,000) $ (101,000) $ (366,000) $ (278,000) Expense of stock issued for services and Litigation Settlement (13,000) (281,000) Gain on Litigation Settlement and Other 52,000 Gain on Sale of Buildings 416,000 . ------------------------------------------------------------------------------ INCOME (LOSS) BEFORE INCOME TAXES $ (295,000) $ (56,000) $ (1,366,000) $ (538,000) INCOME TAXES - - - - ------------------------------------------------------------------------------ NET INCOME (LOSS) $ (295,000) $ (56,000) $ (1,366,000) $ (538,000) LESS CURRENT UNPAID DIVIDENDS ON PREFERRED STOCK - - (26,000) - ------------------------------------------------------------------------------ NET LOSS APPLICABLE TO COMMON SHARES $ (295,000) $ (56,000) $ (1,392,000) $ (538,000) ============================================================================== LOSS PER SHARE APPLICABLE TO COMMON STOCK $ (0.02) $ (0.00) $ (0.10) $ (0.05) ============================================================================== WEIGHTED AVERAGE COMMON STOCK AND COMMON STOCK EQUIVALENTS OUTSTANDING $ 13,406,708 $ 11,685,413 $ 13,406,708 $ 11,685,413 ==============================================================================
The accompanying notes are an integral part of these financial statements 4 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES DIGITRAN SYSTEMS, INCORPORATED and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended January 31, ^1999 ^1998 ----------------------------- Cash Flows From Operating Activities Net Loss $ (1,366,000) $ (538,000) Adjustments to reconcile net loss to net cash Provided by (used in) operating activities: Depreciation and Amortization 135,000 75,000 Issuance of common stock for services and litigation settlement 180,000 281,000 Gain on litigation settlements (52,000) (Increase) Decrease in: Accounts Receivable (539,000) 132,000 Inventory 614,000 195,000 Costs & Earning in excess of billing (192,000) Other current assets 3,000 Increase (Decrease) in: Accounts Payable and other Current liabilities 472,000 (889,000) Billing in excess of costs (267,000) ----------------------------- Net Cash Used in Operating Activities $ (504,000) $(1,252,000) Cash Flows From Investing Activities Purchase of property and equipment (8,000) (4,000) Increase in capitalized simulator costs - ----------------------------- Net Cash Used in Investing Activities $ (8,000) $ (4,000) Cash Flows From Financing Activities Proceeds from Stock Offering 220,000 555,000 Proceeds from short term borrowing 797,000 1,001,000 Payments on short term borrowing (887,000) (246,000) Proceeds from long term borrowing 691,000 39,000 Payments on long term borrowing (765,000) (83,000) Net Proceeds from Sale of Buildings 409,000 0 ----------------------------- Net Cash Provided by Financing Activities $ 465,000 $ 1,266,000 Net Increase (Decrease) in Cash (47,000) 10,000 Cash Beginning of Period 65,000 39,000 ----------------------------- Cash End of Period $ 18,000 $ 49,000 ============================= The accompanying notes are an integral part of these financial statements 5 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES NOTE 1 - CONDENSED FINANCIAL STATEMENTS Digitran Systems, Incorporated (the "Registrant") files herewith unaudited condensed balance sheets of the Registrant as of January 31, 1999, unaudited condensed statements of operations for the three months and nine months ended January 31, 1999 and 1998 and unaudited condensed statements of cash flows for the nine months ended January 31, 1999 and 1998 together with unaudited condensed notes thereto. In the opinion of management of the Registrant, the financial statements reflect all adjustments, all of which are normal recurring adjustments, necessary to fairly present the financial condition of the Registrant for the interim periods presented. 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, 1998 audited financial statements. The results of operations for the periods ended January 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 costs of revenues, the gross margins on relatively low revenue volumes will be lower than otherwise expected. During the quarter, the Company formed Digitran Simulation Systems, Inc., a wholly-owned subsidiary formed under the laws of Arizona, USA. The Company then transferred its crane division to this subsidiary. NOTE 2 - COMMITMENTS AND CONTINGENCIES In the normal course of business, there may be various legal actions and proceedings pending which seek damages against the Company. In the opinion of management the ultimate resolution of these matters will not have a material adverse impact upon the Company, its business or property. Going Concern The accompanying financial statements have been presented on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring operating losses, has a deficit in working capital, and has an accumulated earnings deficit. The Company has not been unable to utilize traditional forms of corporate financing for several years. 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 6 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES proposals currently outstanding to potential customers. Management plans to continue focusing its time, attention and financial resources on operational considerations. 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 noncumulative, $.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 January 31, 1999 there were 62,075 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 15, 1993. No dividends have been paid since March 15, 1993 resulting in dividends in arrears of approximately $191,191. 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. 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 7 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES be exercised at the option of the holder thereof at two shares of common stock for each preferred share converted. Holders of the preferred stock are entitled to one tenth of a vote for each share of preferred stock held. The Company may, at its option, redeem at any time all shares of the preferred stock or some of them on notice to each holder of preferred stock at a per share price equal to the stated value ($7.00) plus all accrued and unpaid dividends thereon (whether or not declared) to the date fixed for redemption, subject to certain other provisions and requirements. PART I FINANCIAL INFORMATION - ---------------------------- ITEM 2 Management's Discussion and Analysis of Financial Condition or Plan - -------------------------------------------------------------------------------- of Operations. - -------------- Reporting Note. Due to the late date of this filing, management chooses to report its plans as of the date of filing, which would include information subsequent to the ending date of the period being reported. Management believes that reporting the most current information is more meaningful. Management's Future Plans - ------------------------- Financing - --------- To allow the Company to move forward, grow and have sufficient liquidity for future operations, the Company is seeking to restructure its finances as follows. In the absence of this or a similar refinancing, the Company will experience cash flow problems on a chronic basis until operations can generate positive cash flow: (1) Equity Financing $3,000,000 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 $ 200,000 Payments for Short Term Debt 500,000 Overdue Payables - Key Vendors 500,000 Payment for Long Term Debt 500,000 Product Development 350,000 Increased Marketing Efforts 150,000 Increased Engineering Personnel 150,000 Stock Market Relations 50,000 Working Capital and General Corporate Purposes to Finance Growth 2,500,000 ---------- Total $5,000,000 ========== 8 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES 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 becomes 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. These variations are being developed primarily for the Crane and Truck product lines. Key Executives - -------------- During this fiscal year, the Company bolstered its management team with three experienced executives (Sales, Marketing, and Accounting). The Company continues to develop and enhance its commitment to quality and to reversing the current condition of Digitran. The additional sales personnel are already accelerating the completion of existing projects, as well as identifying other potential customers. Results of Operations. Nine months ended January 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 pay period) Manufacturing overhead is negligible. Consequently, gross margins 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 practices and to eliminate practices that involve or create intangible assets. Selling, General and Administrative. During this period, the Company invested heavily in Sales and Marketing efforts: Trade shows, advertising and extensive 9 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES travel. Also because of weak cash flow, the Company incurred commitment fees, legal fees and investor related expenses in excess or normal levels during this quarter. Interest. Interest expense increased 30% due to the increased borrowing and a higher average rate. Sale Leaseback of Building. During the first quarter, the Company entered into a Sale - Leaseback Agreement with a shareholder, for the two buildings it occupies in North Logan. The sale price was at fair market value and the lease term is for 10 years. A gain was recognized due to the difference between market value and book value. PART II OTHER INFORMATION - ------------------------- ITEM 1 Legal Proceedings - ------------------------ See Note 2 - "Commitments and Contingencies" ITEM 2 Changes in Securities - ---------------------------- During this quarter, 12,000 shares of common stock were issued as part of the Private Offering Memorandum. 88,500 shares of common stock were issued as part of the Preferred Stock conversion. 272,884 shares of common stock were issued to consultants, suppliers and employees for services rendered. ITEM 3 Defaults on Senior Securities - ------------------------------------ Holders of Series 1 Class A 8% Cumulative Convertible Preferred Stock are entitled to receive cumulative dividends at the annual rate of $.56 per share, payable semi-annually on September 15 and March 15, beginning September 15, 1992. No preferred stock dividends have been paid since September 15, 1993, resulting in aggregate dividends in arrears of 191,191. 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 10 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 March 31, 1999 By: /s/ Loretta Trevers ------------------------------------ By: Loretta Trevers (President, Chairman & Chief Executive Officer) Dated March 31, 1999 By: /s/ S. Emerson Lybbert ------------------------------------ By: S. Emerson Lybbert (Chief Financial Officer) 11 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIGITRAN SYSTEMS, INCORPORATED, FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS APR-04-1998 JAN-31-1999 18,000 0 834,000 0 82,000 934,000 815,000 (473,000) 1,276,000 3,060,000 980,000 0 1,000 156,000 (2,921,000) 1,276,000 2,247,000 1,831,000 1,560,000 3,247,000 0 0 366,000 (1,366,000) 0 (1,366,000) 0 0 0 (1,366,000) (0.10) (0.10)
-----END PRIVACY-ENHANCED MESSAGE-----