-----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, IV1nvtp7CGok7G1Z22i9Hy+vCyzvtgl0sIQSf0uVtIa7jYokAWfcg8d77v83z2UA kmKcHNwmJfZAFBVCkcY2Yw== 0001010412-01-500154.txt : 20010910 0001010412-01-500154.hdr.sgml : 20010910 ACCESSION NUMBER: 0001010412-01-500154 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010430 FILED AS OF DATE: 20010907 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: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19470 FILM NUMBER: 1733113 BUSINESS ADDRESS: STREET 1: 2176 NORTH MAIN STREET 2: PO BOX 6310 CITY: LOGAN STATE: UT ZIP: 84341-6310 BUSINESS PHONE: 8017529067 MAIL ADDRESS: STREET 1: 2176 NORTH MAIN CITY: LOGAN STATE: UT ZIP: 84341-1739 10KSB/A 1 ka1.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________ FORM 10-KSB/A-1 [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, 2001 [ ] 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) 205 West 8800 South P.O. Box 91 Paradise, Utah 84328-0091 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (435) 757-4408 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: 2001 - $99,646 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 $-0- at April 30, 2001, computed at the closing quotation for the Registrant's common stock of $0.00 as of April 30, 2001, even though the stock has traded for positive values since that date. State the number of shares outstanding of each of the Issuer's classes of common equity as of the latest practicable date: at August 10, 2001 there were 23,347,699 shares of the Registrant's Common Stock and 2,000,000 shares of Class B Common Stock outstanding. Transitional Small Business Disclosure Format (Check one):Yes[ ]No [X] Documents Incorporated by reference: None PART I ITEM 1 DESCRIPTION OF BUSINESS Preface As of April 30, 2000 and thereafter, the results of the company's operations have been reported as if they had been discontinued. This is primarily due to the fact that the company entered into an Agreement to sell the rights to market its Crane and Truck Division product lines in November of 1999. Since certain provisions of the Agreement are still not completed, the following description of the business (ITEM I) is also still included in its former, present tense. Had the provisions of the Agreement been completed, most of this section would no longer apply, or would at a minimum, be described in past tense. 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 Offshore Lattice Oil Drilling Rig Container/Cargo/Supplies Lattice Truck Bulk Materials Management Telescopic Truck Precision Materials Mgt. Tower Stationary Heavy Construction Mgt. 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 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 classroom techniques to provide training to the new and the experienced driver. Sales Revenues for the year ended April 30, 2001 were as follows: Simulators % Support Contracts % Total % Crane $ -0- - $ -0- - $ -0- - Petroleum $ 74,185 74 $ 25,461 26 $ 99,646 100 Vehicle $ -0- - $ -0- - $ -0- - Total $ 74,185 74% $ 25,461 26 $ 99,646 100 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. 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. Significant Customers During the fiscal years ended April 30, 2001 and 2000, net sales to the following customers accounted for more than 10% of the Company's sales: 2001 2000 Customer A 74,185 -0- Customer B 25,461 -0- Customer C -0- 302,197 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. 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, 2001, the Company had no full-time employees and 4 part time employees. As of April 30, 2000 the Company had 3 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 As of April 30, 2001 the company had no tangible assets and no real property. 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. See also Management's Discussion and Analysis. 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: 2001 2000 High Low High Low 1st Quarter 9/64 1/24 5/16 5/32 2nd Quarter 1/10 1/32 5/32 7/128 3rd Quarter 1/32 1/256 1/8 1/32 4th Quarter 1/64 1/256 5/16 9/128 Shareholders As of April 30, 2001, the Company had 778 record holders of its Common Stock and 3 record holder of its Class B Common Stock as well as 14 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 $210,256 as of April 30, 2001 and $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 During the year ended April 30, 2001, the company still had nominal operations and operating capacity, even though its operations are essentially discontinued. Sales agents, living throughout the world, also represent the company. Shareholders support other aspects of the business. 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. 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. To date, the Company has recognized a gain of approximately $91,000 on the sale of these rights. The Company continued 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 is actively pursuing future alternatives. Management's Discussion and Analysis of the Results of Operations 2001 vs. 2000. Results of Operations: The company incurred an operating loss of $484,108 due primarily to the accrual of interest on outstanding debt, the accrual of legal fees-presumed to have been incurred as a plaintiff, and salaries. The company continued to scale down its operations. Ms. Trevers was a driving force behind the company. As her health deteriorated, her ability to drive the company was compromised. Revenues. Net Sales for 2001 were $99,646 compared to $ 903,742 for 2000 for an 89% decrease. The Crane and Truck divisions accounted for 67% of the revenues for fiscal year 2000 versus 0% in fiscal year 2001. Another company now markets the Crane and Truck division product lines. ITEM 7 FINANCIAL STATEMENTS The Consolidated Financial Statements are filed as part of this Annual Report on Form 10-KSB. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS April 30, 2001 C O N T E N T S Independent Auditors' Report . . . . . . . . . . . . . . . . . 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 . . . . . . . . 8 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Digitran Systems, Incorporated and Subsidiaries We have audited the consolidated balance sheet of Digitran Systems, Incorporated and Subsidiaries as of April 30, 2001, and the related consolidated statements of operations, shareholders' deficit, and cash flows for the years ended April 30, 2001 and 2000. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Subsidiaries as of April 30, 2001, and the results of their operations and their cash flows for the years ended April 30, 2001 and 2000, in conformity with accounting principles generally accepted in the United States of America. 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. /S/HJ & Associates HJ & Associates Salt Lake City, Utah July 31, 2001 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheet
ASSETS April 30, 2001 CURRENT ASSETS Cash $ 341 Total Current Assets 341 TOTAL ASSETS $ 341 LIABILITIES AND SHAREHOLDERS' (DEFICIT) CURRENT LIABILITIES Accounts payable $ 860,348 Accrued expenses 2,008,151 Current portion of notes payable (Note 3) 688,399 Total Current Liabilities 3,556,898 LONG-TERM LIABILITIES (Note 3) - Total Liabilities 3,556,898 COMMITMENTS AND CONTINGENCIES (Note 10) SHAREHOLDERS' (DEFICIT) Preferred stock, $0.01 par value: 1,000,000 shares authorized, 51,500 shares issued and outstanding, (entitled to one-tenth vote per share) 516 Common stock, $0.01 par value: 25,000,000 shares authorized, 23,347,699 shares issued and outstanding (entitled to one-tenth vote per share) 233,477 Class B common stock, $0.01 par value: 5,000,000 shares authorized, 2,000,000 shares issued and outstanding (entitled to one vote per share) 20,000 Additional paid-in capital 10,416,438 Minority interest - Accumulated (deficit) (14,266,988) Total Shareholders' (Deficit) (3,556,557) TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 341
The accompanying notes are an integral part of these consolidated financial statements. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Operations
For the Years Ended April 30, 2001 2000 REVENUES $ - $ - OPERATING COSTS - - OPERATING LOSS - - OPERATING LOSS BEFORE LOSS FROM DISCONTINUED OPERATIONS - - LOSS FROM DISCONTINUED OPERATIONS (Note 11) (616,044) (77,267) NET LOSS (616,044) (77,267) OTHER COMPREHENSIVE INCOME (LOSS) Dividends on convertible preferred stock; unpaid (28,840) (29,994) Total Other Comprehensive Income (Loss) $ (644,884) $ (107,261) BASIC (LOSS) PER SHARE Continuing operations $ (0.00) $ (0.00) Discontinued operations (0.03) (0.00) Total (Loss) Per Share $ (0.03) $ (0.00) WEIGHTED AVERAGE SHARES OF COMMON STOCK 22,500,947 16,361,144
The accompanying notes are an integral part of these consolidated financial statements. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Shareholders' Deficit For the Years Ended April 30, 2001 and 2000
Preferred Stock Common Stock Shares Amount Shares Amount 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 Conversion of preferred shares (2,150) (21) 22,659 227 Reversal of Class B issuance - - - - Shares issued for services - - 392,341 3,923 Shares issued for debt - - 445,525 4,455 Net loss for the year ended April 30, 2001 - - - - Balance, April 30, 2001 51,500 $ 516 23,347,699 $ 233,477
CONTINUED DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Shareholders' Deficit For the Years Ended April 30, 2001 and 2000
Class B Capital in Common Stock Excess of Accumulated Shares Amount Par Value Deficit 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 2,600,000 26,000 10,380,683 (13,610,944) Conversion of preferred shares - - (206) - Reversal of Class B issuance (600,000) (6,000) (54,000) - Shares issued for services - - 35,311 - Shares issued for debt - - 54,650 - Net loss for the year ended April 30, 2001 - - - (616,044) Balance, April 30, 2001 2,000,000 $ 20,000 $10,416,438 $(14,226,988)
The accompanying notes are an integral part of these consolidated financial statements. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows
For the Years Ended April 30, 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (616,044) $ (77,267) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization - 62,802 Gain on reversal of stock (60,000) (504,238) Issuance of common stock for services 39,234 420,409 Changes in operating assets and liabilities: Decrease in accounts receivable 74,770 173,848 Decrease in inventory - 68,486 Increase in accounts payable and other current liabilities 532,382 178,282 Net Cash Used In Operating Activities (29,658) 322,322 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of equipment - 94,600 Net Cash Provided In Investing Activities - 94,600 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable - 245,000 Payments on notes payable (6,000) (632,466) Net Cash Used by Financing Activities (6,000) (387,466) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (35,658) 29,456 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35,999 6,543 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 341 $ 35,999
The accompanying notes are an integral part of these consolidated financial statements. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Notes to the Consolidated Financial Statements April 30, 2001 and 2000 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., and the Company changed its name to Digitran Systems, Incorporated. In 1992, 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 approximately $3,400,000 as of April 30, 2001. 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 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, 2001 and 2000, there were no significant contracts in progress. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Notes to the Consolidated Financial Statements April 30, 2001 and 2000 NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition (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. In October 1999, the Company entered into an agreement to sell software rights. Revenue from this transaction has been delayed and recognized as cash is received from the purchasing company due to the low reliability of collections. As specified by SAB 101, revenue is not to be recognized until both earned and realized or realizable. During the year ended April 30, 2001, the Company recognized approximately $91,000 in revenue associated with the software sale which is equal to the amount collected from the purchaser. 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 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. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Notes to the Consolidated Financial Statements April 30, 2001 and 2000 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. NOTE 2 - RELATED PARTY TRANSACTIONS At April 30, 2000, the Company included approximately $74,000 of advances and commissions payable to a shareholder/officer which was eliminated during the current year. NOTE 3 - NOTES PAYABLE Notes payable at April 30, 2001 are comprised of the following: Notes payable to stockholder, officers or directors (related parties) 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. 299,264 Total Notes Payable 688,399 Less current portion (688,399) Long-term debt $ - Future maturities of notes payable are as follows: Year Ending Amount 2001 $ 688,399 2002 - 2003 - 2004 - Thereafter - $ 688,399 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Notes to the Consolidated Financial Statements April 30, 2001 and 2000 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, 2001, there were 51,500 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 2001 and 2000 of approximately $239,096 and $210,256, respectively, or $4.64 and $3.92 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, 2001 2000 Income tax benefit at statutory rate $ 234,097 $ 26,000 Change in valuation allowance (234,097) (26,000) $ - $ - DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Notes to the Consolidated Financial Statements April 30, 2001 and 2000 NOTE 5 - INCOME TAXES (Continued) Deferred tax assets (liabilities) at April 30, 2001 are comprised of the following: Net operating loss carryforward $ 5,044,342 Depreciation - Accrued commission - Valuation allowance (5,044,342) $ - At April 30, 2001, the Company has a net operating loss carryforward available to offset future taxable income of approximately $14,200,000, 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, 2001 2000 Issuance of stock for services $ 39,234 $ 420,409 Common stock issued for payment of debt 59,105 733,862 Total $ 98,339 $1,154,271 During the year ended April 30, 2001, the Company converted 2,150 shares of preferred stock to 22,659 shares of common stock in accordance with the preferred stock conversion feature. For the Years Ended April 30, 2001 2000 Interest paid $ 734 $ 94,217 Income taxes paid $ - $ - DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Notes to the Consolidated Financial Statements April 30, 2001 and 2000 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, 2001 2000 Company A $ 74,185 $ - Company B 25,461 $ - Company C - $ 302,197 Export sales to unaffiliated customers were as follows: For the Years Ended April 30, Region 2001 2000 North America (excluding the U.S.) $ - $ 357,000 Asia 25,461 133,000 Middle East 74,185 - $ 99,646 $ 490,000 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, 2000 1,390,962 $ 0.25 - 1.08 Granted - - Exercised - - Expired or canceled (165,157) 1.00 Outstanding at April 30, 2001 1,225,805 $ 0.25 - 1.08 Options and warrants exercisable at April 30, 2001 and 2000 are 1,225,805 and 1,390,962, respectively. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Notes to the Consolidated Financial Statements April 30, 2001 and 2000 NOTE 9 - 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 10 - 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. DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES Notes to the Consolidated Financial Statements April 30, 2001 and 2000 NOTE 11 - 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 Year Ended April 30, 2001 2000 NET SALES $ 99,646 $ 903,742 COST OF SALES 87,923 483,459 GROSS PROFIT 11,723 420,283 EXPENSES Selling, general and administrative expenses 588,848 679,451 Depreciation and amortization - 62,802 Total Expenses 588,848 742,253 LOSS FROM OPERATIONS (577,125) (321,970) OTHER INCOME (EXPENSE) Interest expense (130,586) (259,535) Gain on disposal of assets 91,667 504,238 Total Other Income (Expense) (38,919) 244,703 LOSS BEFORE INCOME TAXES (616,044) (77,267) INCOME TAX BENEFIT - - NET LOSS $ (616,044) $(77,267) 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 Aaron Etra 60 Chairman, Director Gary Blum 60 Director Quentin Casperson 52 President Scott Lybbert 43 Corporate Secretary 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 was one of the original founders of the Company in 1979. She served as President and CEO from March of 1994 and as Chairman of the Board since 1985. She had been a trustee for the Utah Information Technology Association since 1990. Ms. Trevers passed away in April, 2001. Aaron Etra has been the President of Investors & Developers Associates, Inc., 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. Mr. Etra received no compensation for the year ended April 30, 2001. 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. Mr. Blum received no compensation for the year ended April 30, 2001. Quentin Casperson and Scott Lybbert are Shareholders who are assisting the company primarily to protect their investment. They were acting upon the request of Ms. Loretta Trevers, and continue to act at the request of the Board of Directors. 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 $74,000. This debt was increased by advances to the Company and expenses owed to Ms. Trevers, reduced by payments made to her. The net obligation to the company was converted and charged to her as salary expense at the end of the year. Consequently, as of April 30, 2001, no amounts were owed, to or from, Ms. Trevers by the Company. Other Items There were no exercises of stock options (or tandem stock Appreciation rights) and freestanding appreciation rights (or unexercised options or stock appreciation rights) made during the fiscal year ended April 30, 2000 by any Named Executive Officer. The following table represents outstanding options by officers of the Company: Options and Stock Issuances AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES (a) (b) (c) (d) (e) Number of Value of Unexercised Unexercised Options/SARs Options/SARs at FY-End (#)at FY-End ($) Shares Acquired Exercisable/ Exercisable/ Name on Exercise (#) Value Realized($)Unexercisable Unexercisable Aaron Etra (Chairman, Director) 2001 -0- -0- 0/0 $0/0 2000 -0- -0- 0/0 $0/0 Gary Blum (Director) 2001 -0- -0- 0/0 $0/0 2000 -0- -0- 0/0 $0/0 Quentin Casperson (President) 2001 -0- -0- 0/0 $0/0 2000 -0- -0- 0/0 $0/0 Scott Lybbert (Corporate Secretary) 2001 -0- -0- 150,000/0 $0/0 2000 -0- -0- 150,000/0 $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, 2001 or 2000. 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 August 10, 2001 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 205 W. 8800 South Paradise, UT 84328 2,205,973 9.45% 1,800,000 Loretta P. Trevers Trevers Trust/Trust Accounts 205 W. 8800 South Paradise, UT 84328 1,869,000 8.01% 200,000 Robert H. Jaffe 8 Mountain Avenue Springfield, NJ 1,573,050 6.74% 0 Clayton Paul Hilliard P.O. Box 52745 Lafayette, LA 70505 1,301,904 5.58% 0 Scott Lybbert* 2666 Oakwood Drive Bountiful, UT 84010 1,000,123 4.28% 0 Gary Blum* 3278 Wilshire Blvd, #603 Los Angeles, CA 90010 535,480 2.29% 0 Quentin Casperson* 205 W. 8800 South Paradise, UT 84328 506,000 2.17% 0 Aaron Etra* 1350 Avenue/Americas 29th Floor New York, NY 10021 427,100 1.83% 0 All executive officers and directors as a group (4 persons) 2,468,703 10.57% 0 Name and Percent of Number and Address of Outstanding Percent of Beneficial Shares of Outstanding Percent of Owner\Identity Class B and Shares of Total Voting of Group Common stock Preferred stock Power Loretta P. Trevers 205 W. 8800 South Paradise, UT 84328 90% 0 46.61% Loretta P. Trevers Trevers Trust/Trust Accounts 205 W. 8800 South Paradise, UT 84328 10% 0 8.93% Robert H. Jaffe 8 Mountain Avenue Springfield, NJ 0 0 3.63% Clayton Paul Hilliard P.O. Box 52745 Lafayette, LA 70505 0 0 3.00% Scott Lybbert* 2666 Oakwood Drive Bountiful, UT 84010 0 0 2.31% Gary Blum* 3278 Wilshire Blvd, #603 Los Angeles, CA 90010 0 0 1.24% Quentin Casperson* 205 W. 8800 South Paradise, UT 84328 0 0 1.17% Aaron Etra* 1350 Avenue/Americas 29th Floor New York, NY 10021 0 0 .99% All executive officers and directors as a group (4 persons) 0 0 5.71% *Indicates current officer or director of the Company. 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, Incorporated. Paradise, Utah We hereby consent to the use of our audit report dated July 31, 2001 in this Form 10KSB of Digitran Systems, Inc. for the year ended April 30,2001, which is part of this Form 10KSB and all references to our firm included in this Form 10KSB. HJ & Associates Salt Lake City, Utah July 31, 2001 Signatures /s/ Aaron Etra Chairman of the Board, Director ------------------------- Aaron Etra September 7, 2001 /s/ Gary Blum Director ------------------------- Gary Blum September 7, 2001 /s/ Quentin Casperson President ------------------------- Quentin Casperson September 7, 2001 /s/ Scott Lybbert Corporate Secretary ------------------------- Scott Lybbert September 7, 2001 -----END PRIVACY-ENHANCED MESSAGE-----