<PAGE>
                        SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, DC 20549
                                  FORM 10-KSB
(MARK ONE)

   [X]  Annual report pursuant to Section 13 or 15(d) of the 
        Securities Exchange Act of 1934 [Fee Required] For
        the fiscal year ended    September 30, 1997   OR
                                 ------------------

   [ ]  Transition report pursuant to Section 13 or 15(d) of the Securities 
        Exchange Act of 1934 [No Fee Required] for the transition 
        period from _________ to _________
   

                       Commission File Number   2-95050-D  
                                                ---------

                          DATA NATIONAL CORPORATION                
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Colorado                                       84-0958983    
 ------------------------------               ------------------------------ 
(State or other jurisdiction of              (IRS Employer Identification No.)
incorporation or organization)


 11415 West, I-70 Frontage Road-North
      Wheat Ridge, Colorado                                 80033  
----------------------------------------                   --------
(Address of principal executive offices)                  (Zip Code)
Registrant's telephone number, including area code:    (303) 431-1933  
                                                       --------------

Securities registered pursuant to Section 12(b) of the Act:   NONE
                                                              ----

Securities registered pursuant to Section 12(g) of the Act:   NONE
                                                              ----

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 by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-B is not contained herein, and will not 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.[   ]

Registrant's revenues for the fiscal year ended September 30, 1997 were 
$3,897,350.
                                  -1-
<PAGE>

As of December 31, 1997, the aggregate market value of the common stock of 
the Registrant held by non-affiliates was undeterminable at that time due to 
a lack of any trading market for the Registrant's shares.

As of December 31, 1997, there were 1,592,565 shares of the Registrant's 
$.001 par value common stock outstanding.




































                                  -2-
<PAGE>
                                PART I

Item 1.  Description of Business
--------------------------------
 (a) Business Development.
 -------------------------
   Data National Corporation (the Company) was formed under the laws of the 
State of Colorado in November 1982.  The Company currently owns 97.8% of the 
outstanding Common Stock of Data National Inc. (DNI).  DNI owns 100% of the 
shares Service Business Systems, Inc. (SBS) and National COM-LINK Systems, 
Inc. (NCL). The Company acts as a holding company for DNI and its 
subsidiaries and coordinates their activities.

   Most of the revenue of the Company is generated by SBS.  NCL receives 
royalties from licensing a trademark and, in 1996, recognized revenue that 
was previously deferred as a result of the termination of a contract for the 
sale of hardware and software products.

 (b) Business of Registrant.
 ---------------------------
     Principal Products and Services and Their Markets
     -------------------------------------------------
   The Company derives revenues from products and services provided by its 
subsidiary, SBS.  Since inception, SBS has provided database marketing 
services to the automotive industry, specifically service stations of major 
oil companies and independent auto repair facilities.  Services provided to 
clients in the automotive industry accounted for 83% and 88% of its revenues 
in fiscal 1997 and fiscal 1996, respectively.  In fiscal 1996, SBS began 
expanding its client base to include auto dealerships and customers in the 
financial services and entertainment industries.  SBS continues to expand 
into other industries.

   By utilizing proprietary software developed internally, SBS analyzes a 
client's customer database to develop segmentation profiles of the client's 
customers. By developing a better understanding of who their customers are
and what their needs and expectations are, SBS assists its clients in 
improving their business performance.

   Once these customer segmentation profiles are developed, SBS develops 
customer-centric programs to assist clients in enhancing customer loyalty, 
attracting new customers and increasing customer retention.

   The following are some examples of programs which have been developed by 
SBS:

     Existing Customer Programs
     --------------------------
      -    Thank you cards
      -    Service reminders for the automotive market (tune-ups, oil 
           changes, etc.)
      -    Safety reminders for the automotive market (brakes, tires, shocks,
           etc.)
      -    Holiday greeting cards
      -    Point of sale coupons
      -    Customer surveys
      -    Newsletters
      -    Preferred customer programs, including membership cards and 
           coupon books
      -    Telephone surveys

   The first three programs have been marketed under the name Autotrac .  
This program is designed to retain customers through periodic reminders for 
services.

     New Customer Programs
     ---------------------

                                  -3-
<PAGE>      
      -    Promotions targeted to new residents and other customers matching 
           the segmentation profile in the client's market area.
      -    Informational mailings (i.e., interest rate updates or real estate
           trends) to targeted customers
      -    Referral request programs

 SBS also implements these programs for clients by maintaining and managing 
the customer's database, selecting target customers for the various programs 
and mailing the materials on the client's behalf.  SBS can also assist 
clients by obtaining names of potential customers from outside sources which 
match the client's current segmentation profiles.  SBS also generates sales 
by providing artistic and graphic design services used in developing these 
programs.

 SBS also provides marketing and technical consulting services to its clients 
and facilitates the printing of the marketing materials to be used in the 
customer specific marketing programs.

 SBS expanded its customer base in fiscal 1996 with the addition of commonly 
controlled auto dealerships and a mortgage loan origination company.  The 
Company expanded its customer base in 1997 with the addition of two casino 
clients located in an area with limited stakes gambling as well as a 
significant client in the automotive industry.  The Company has also begun 
to provide mailing services, on a limited basis, to utilize available 
production capacity.

  Employees
  ---------
   SBS employs all of the employees of the Company.  As of September 30, 
1997, SBS had 35 full-time employees working in the office of the Company.  
In addition, SBS had 11 employees for coding and inputting the information 
received from repair facilities into the SBS computer system, some of whom 
are part-time.  These employees are home-based.

  Sources and Availability of Raw Materials
  -----------------------------------------
   The Company has experienced no significant difficulty with the delivery 
and availability of paper supplies that it uses in its business, and no 
difficulty is forecast for the immediate future.

  Patents, Trademarks, Licenses, Franchises, Concessions, Etc.
  ------------------------------------------------------------
   The Company has no patent protection for its existing products which the 
Company considers to be proprietary items.  Except in unusual circumstances, 
which do not apply to the Company, computer software is generally not 
patentable, but is protected by copyright and trade secret laws, as well as 
contractual and nondisclosure provisions of the Company's licensing 
agreements.

  The subsidiaries of the Company hold two trademarks for the names Autotrac 
and Autolink.

  Seasonality
  -----------
   SBS sells holiday greeting cards in the first quarter of the fiscal year 
ending September 30.  This program has resulted in seasonal sales of $225,010
and $223,962 for the years ended September 30, 1997 and 1996, respectively.  
There are no other seasonal factors to the Company's business.

  Dependence Upon Small Number of Customers
  -----------------------------------------
   During the fiscal year ended September 30, 1997, the Company received 
approximately 65% of its consolidated gross revenues from sales to only 
three of its customers.  Two of these customers, Penske Auto Centers, Inc. 

                                  -4-
and Sun Company, Inc., each accounted for sales in an aggregate amount of 
more than 10% of the Company's consolidated revenues during the past fiscal 
year, and the loss of either of such customers would have a material adverse 
effect on the Company and its subsidiaries taken as a whole.

   Competition
   -----------
 SBS competes in the Technology-Enabled Relationship Marketing (TERM) 
services business.  In defining such systems, the Gartner Group, an 
information technology advisory company, maintains definitions for first and
second generation capabilities.  Based on Gartner's criteria, SBS's offering 
overlaps both generations.
























                                  -5-
<PAGE>
 First generation database and relationship marketing services are 
characterized as product centric, list selection systems that typically 
target and send monologues at customers.  They use proprietary file 
structures and deal with aggregate summary data only.

 Second generation offerings are more customer-centric in their focus in that 
they initiate and maintain dialogues with customers.  These systems are most 
often supported by "open" relational database technology with massive volumes
of actual encounter/transaction details.

 Although the majority of SBS' attention is focused on the development and 
marketing of second generation capabilities, the Company still supports and 
invites client business that by Gartner's definition would be considered
first generation in nature.

 Gartner Group estimates that as many as 70% of the database marketing systems
and services in use today are still in their first generation.  
Market-leaders that supply such first generation offerings include:  Polk,
Metromail, Data Base America, Axiom, Harte-Hanks, Mey&Speh, David Sheppard, 
Okra, and CIC.

 SBS believes that there are approximately 20 companies competing directly 
with it in the automotive aftermarket  business.  Most of the competitors are
small companies like SBS with none of them having a market share of more than
20%.  However, the largest  competitor is Moore/BCS, a division of Moore 
Business Forms in Toronto, Canada, a billion dollar conglomerate.  Another 
large competitor is IDS, a division of AON Insurance Company, based in 
Chicago.  Mailmark, Inc., based in Canoga Park, California, is a direct 
marketing/data processing company, which provides a specialized service 
reminder/customer contact program for the automotive industry.  Other 
companies like Reynolds and Reynolds, Brandt Contact Services, Computer 
Care, and InteliMail are known competitors.

 SBS believes it can effectively compete with these companies.  SBS provides 
valuable data and marketing strategies in addition to providing the mailing 
services.  SBS manages large databases for automotive businesses, and 
provides marketing, creative, and customer-centric contact services.  SBS 
also provides management reports to assist its customers in managing their 
businesses and contacting their customers.

 SBS markets its services to the automotive aftermarket through contacts made
at the corporate level of oil companies and automotive repair centers.  SBS 
has three sales people making calls on potential customers.  Some of the 
customers are contacted through telephone sales.  SBS also employs customer 
service representatives that sell products to existing customers in addition 
to providing customer service.  SBS also has one employee devoted to market 
research and development of new products for new and existing markets.

 In fiscal 1996, SBS expanded its marketing and sales efforts into new 
markets, as follows:

 Automotive Dealerships - in Colorado and California.
 ----------------------
 Financial Services - specifically the mortgage loan business in Colorado.
 ------------------
 Entertainment - specifically the gaming industry in Colorado.
 -------------
 The President of the Company has directed the sales efforts into the new 
markets with assistance from the sales personnel and the Vice President of 
Marketing

   Research and Software Development Expenditures
   -------------------------------------
   Although no costs were classified as research and development during each 
of the past two fiscal years, SBS expends considerable effort for software 
improvements on an annual basis.  Such effort is a necessary element for 

                                  -6-
<PAGE>
maintaining the competitiveness of its software modules, and such costs are 
recorded as normal operating expenses.

   SBS is developing a proprietary database application as the basis for 
its core business functions.  SBS has capitalized $310,064 as deferred 
computer software development costs as of September 30, 1997.  The costs
deferred include the costs of outside consultants and salary and benefit 
costs of programmers hired upon completion of the design phase, to complete 
the programming of this software.  

   During the fourth quarter of 1997, the Company performed a functional 
evaluation of the project and the costs capitalized to date and determined 
that costs previously capitalized for certain modules should be written
down as the modules did not perform as designed and were abandoned.  This 
write down totaled $113,661.  

   Upon completion of the software, the capitalized costs will be amortized 
using the straight-line method over a useful life of 3 years.

     Governmental Regulation and Compliance
     --------------------------------------
   There are no governmental regulations pertinent to operations that would 
differ from those applicable to any small manufacturer.  There is no need for
government approval of the Company's products.  Any costs or effects
of compliance with environmental laws are de minimis.

Item 2.  Description of Property
--------------------------------
   The Company occupies office space under one 3-year lease that expires in 
February 1999 and requires an aggregate monthly payment of $6,375.  

Item 3.  Legal Proceedings
--------------------------  
   There are no legal proceedings to report.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
   On September 30, 1996, the Company held its Annual Meeting of Shareholders.

   At the subject annual meeting, Richard S. Simms, Ray E. Dillon III and 
Donald V. Warriner were elected to serve as directors of the Company until 
the next Annual Meeting of Shareholders or until their death,  resignation
or removal, whichever is earliest.  There are no other directors whose terms 
of office as directors continued after the date of the subject meeting.

   The following matters were voted upon at the subject meeting:

 (1) Election of Directors
    
      Name of Nominee        Votes in Favor     Votes Against   Abstentions
      ---------------        --------------     -------------   -----------
       Richard S. Simms        462,690,624            -         136,787,716

       Ray E. Dillon III       462,690,624            -         136,787,716

       Donald V. Warriner      462,690,624            -         136,787,716
 
 (2) The shareholders approved a reverse stock split whereby one new share of 
     the Company's Common Stock was issued in exchange for each 400 shares of

                                  -7-
<PAGE>
     the Company's then currently outstanding Common Stock.  To the extent 
     that this reverse stock split resulted in any shareholder owning less 
     than a single full share of the Company's Common Stock, the Company 
     agreed to pay cash for each such fractional share in an amount equal to 
     the appropriate fraction of $.40 per whole share (which represented the 
     fair value of a whole share after the consummation of the proposed 
     reverse stock split as determined by the Company's Board of Directors).
   
        Votes in Favor          Votes Against           Abstentions
        --------------          -------------           -----------
         462,690,624                  -                 136,787,716

 (3) The shareholders voted to amend the Company's Articles of Incorporation 
     to reduce its authorized capital from 600,000,000 shares of $0.0001 par 
     value Common Stock to 100,000,000 shares, and to change the par value of
     the Company's shares from $0.0001 per share to $0.001 per share.
    
        Votes in Favor          Votes Against           Abstentions
        --------------          -------------           -----------
         462,690,624                  -                 136,787,716

 (4) The shareholders voted to engage the services of a nationally recognized
     auditing firm.

       Votes in Favor           Votes Against           Abstentions
       --------------           -------------           -----------
        462,690,624                   -                 136,787,716

     Subsequently, the Board of Directors engaged the firm of KPMG Peat 
     Marwick LLP to serve as the Company's independent auditors.
    
 (4) In connection with such meeting, the Company did not enter into any 
     settlement arrangement with any person terminating any solicitation 
     subject to Rule 14a-11 of Regulation 14A promulgated under the
     Securities Exchange Act of 1934.
    
 No other matters have been submitted to a vote of security holders during 
the fiscal year ended September 30, 1997.

                               PART II
                                        
Item 5.  Market for Company's Common Equity and Related Shareholder Matters
---------------------------------------------------------------------------  
    (a)   Market Information.
          ------------------- 
       The Company's Common Stock has not been traded on the over-the-counter 
market.  Because of the lack of any viable trading market for the Company's 
securities, no accurate market information is currently available.
        
    (b)   Holders
          -------
       The number of holders of record of the Company's $.001 par value 
Common Stock at September 30, 1997 was approximately 360, after giving effect
to the Company's 400 to 1 reverse stock split.
        
    (c)   Dividends
          ---------
       Holders of Common Stock are entitled to receive such dividends as may 
be declared by the Company's Board of Directors.  No dividends have been paid
with respect to the Company's Common Stock and no dividends are anticipated 
to be paid in the foreseeable future.

                                  -8-
<PAGE>

Item 6.  Management s Discussion and Analysis or Plan of  Operation 
-------------------------------------------------------------------

  Year Ended September 30, 1997 as Compared to the Year Ended September 30, 
  1996
  -------------------------------------------------------------------------
  Revenue for the year ended September 30, 1997 was $3,897,350 compared to 
$2,666,148 for the year ended September 30, 1996.  Almost all of the revenue 
for the Company is generated by SBS, with the exception of licensing revenue 
recorded by NCL of $10,000 for fiscal 1996 which did not recur in fiscal 
1997.  In addition, NCL recorded revenue in fiscal 1996 in the amount of 
$120,486 as a result of termination of a contract for hardware and software 
that was entered into in 1987.  NCL fulfilled its obligation under the 
contract and recognized the revenue that had previously been deferred. The 
increase in revenue for SBS is primarily attributable to a new client in the
automotive industry, which generated revenue of $1,541,841 in fiscal 1997.  
Revenues from other automotive industry clients decreased in 1997 from 1996. 
This was the result of SBS focusing its efforts on obtaining larger, more 
profitable, contracts and continuing to expand into new industries.  
Revenues generated from these new industries are as follows:

                                 1997        1996      
                               --------    --------
  Automotive Dealerships       $134,707    $104,501
  Mortgage Loan                  98,643     113,709
  Entertainment                  90,836           -
  Mailing Services              347,759      55,959
  
  SBS sells holiday greeting cards in the first quarter of its fiscal year.  
This program resulted in seasonal sales of $225,010 and $223,962 for the 
years ended September 30, 1997 and 1996, respectively.  There are no other
seasonal factors to the Company's business.

  Cost of sales as a percentage of revenue amounted to 66% and 56% in fiscal 
1997 and fiscal 1996, respectively.  The cost of sales was lower as a 
percentage of revenue in fiscal 1996 due to the recognition of the
revenue in NCL that had previously been deferred, and the fact that there 
was no cost of sales associated with the revenue recognized.  Excluding this 

                                  -9-
<PAGE>

additional revenue, cost of sales as a percentage of revenue for fiscal 1996
was 59%.  The remainder of the increase in 1997 was primarily due to:  an  
increase in depreciation expense of $30,600 and an increase in the cost of 
maintenance agreements of $15,400 due to the purchase of new equipment; and 
an increase in salaries during the period of approximately $112,900 primarily
due to the addition of data processing and outbound customer service 
personnel as well as production personnel.  

  Selling and marketing expenses increased to $367,881, or 9% of revenue, in 
fiscal 1997 from $287,676, or 11% of revenue, in fiscal 1996.  The total of 
these expenses has increased due to the growth of the Company, while 
decreasing as a percentage of sales.  Salaries, wages and commissions 
increased approximately $53,100 due to the hiring of additional sales 
personnel and increased commissions as a result of increased sales.  In 
1996 these expenses included approximately $7,000 of one time costs to 
produce a video about the Company and its products for use in sales and 
marketing.  Travel, meals and entertainment expenses have increased 
approximately $48,900 due to increased travel to work with new and existing 
clients.

  General and administrative expenses increased to $1,011,914, or 26% of 
revenue, in fiscal 1997 from $751,472, or 28% of revenue, in fiscal 1996.  
The total of these expenses has increased due to the growth of the
Company, while decreasing as a percentage of sales.  

     The increase in 1997 was primarily due to increased costs in 
the following areas: 

     Approximately $25,800 of this increase is rent for additional space.
  
     Due to additional staffing in the Information Technology Department, 
     salaries, taxes and benefits have increased approximately $81,000.
  
     A Vice President of Marketing was hired during the third quarter and the
     President and Vice President of Operations received compensation 
     increases at the beginning of the calendar year resulting in increases
     in compensation expense of approximately $77,000.
  
     Bonuses for two officers of the Company were approximately $35,200 in 
     1997.  There were no bonuses paid in 1996.
  
  Interest expense for 1997 was $135,875 compared to $95,546 for 1996.  The 
interest to related parties decreased approximately $16,000 due to the 
conversion of debt to equity and a resulting decrease in the principal
amount of the loan.  This was offset by interest of approximately $25,000 
on the new bank line of credit. Approximately $29,300 of the increase was 
due to additional equipment purchased by SBS under lease financing
arrangements.

 The Company did not record any income tax benefit due to the uncertainty 
over the Company's ability to realize its deferred tax asset.

Liquidity and Capital Resources
-------------------------------
 In fiscal 1997, cash and cash equivalents increased by $11,351.  Cash of 
$76,311 was provided by operating activities in fiscal 1997.  The Company 
used $208,518 of cash for the acquisition of equipment and development of the
Company's proprietary software for internal use in fiscal 1997.  Cash 
provided by financing activities amounted to $143,558, primarily representing
proceeds from the issuance of Common Stock.

 Trade receivables decreased $22,072 due to a significant ($43,000) special 
project which had been completed and billed in September 1996 and this 
project did not recur in 1997.  This was offset by an increase in sales of 
$25,000 in September of 1997 from September of 1996.  Prepaid postage 
increased $44,646 for additional postage  purchased the last week of 
September 1997 in preparation for a large project completed the first 

                                 -10-
<PAGE>
week of October 1997.  Prepaid expenses increased $13,266 for the purchase of
names in preparation for a targeted mailing for a client.  Other assets 
increased  a total of $38,136.  This increase is attributable to $9,300 for 
costs incurred to perfect the Company's interests in its trademarks, $11,600
for loan fees incurred to obtain the revolving loan facility from Norwest
Business Credit, $4,000 for rent and utility deposits for additional space, 
and $6,300 for deposits on equipment leases.  These increases were funded by 
increases in accounts payable and accrued expenses.  Deferred revenue 
increased $61,309 for prepayments of postage costs by two clients.

 The Company's principal source of liquidity includes cash and cash 
equivalents of $15,792 at September 30, 1997 and cash provided by its 
operations.  The Company had negative working capital in the amount of
$346,107 at September 30, 1997.  The Company believes that internal cash
flow generated from the holiday card program during the quarter ended 
December 31, 1997, and new and existing business, short-term borrowings, 
capital leases to be obtained for the purchase of new equipment, proceeds
from the private placement of the Company's Common Stock and long-term
borrowings will enable the Company to meet its currently projected working
capital needs and cash requirements though at least the end of the 1998
fiscal year.

 The Company has had an accumulated deficit from losses incurred prior to
September 30, 1991.  The Company was profitable for the fiscal years ended
September 30, 1991 through September 30, 1996 which reduced the deficit in
those years.  For the fiscal year ended September 30, 1997 the Company had a
net loss of $(354,879) which increased the deficit.  This was offset by net 
proceeds from the private placement of the Company's Common Stock in the
amount of $174,895 and the exchange of $150,000 of the debt to the related 
party for 37,500 shares of Common Stock.  The deficit was funded in the past 
by proceeds from the issuance of Common Stock and notes from related parties.

 In December of 1996 the Company commenced a private placement of its common 
stock.  Through this offering, which terminated on June 30, 1997, the Company
has received $275,000:  $125,000 in cash and an additional $150,000 from the 
related parties in the form of a reduction on the $597,272 note payable to 
the related parties.  These funds were used for the purchase of new computer 
equipment and software, marketing expenses and to fund working capital needs.

 SBS had borrowed $74,723 as of September 30, 1997 under a bank line of 
credit from Norwest Business Credit.  This line of credit was entered into 
on January 3, 1997 and was funded on January 15, 1997.  The initial
termination date is December 31, 1998.  This line of credit bears interest 
at the rate of 5% over Norwest's prime lending rate with a minimum interest 
charge of $7,500 per quarter.  At September 30, 1997 approximately
$125,000 was available under the facility.

 On July 24, 1997, the Company commenced a new private placement.  Under the 
terms of the offering, the Company is seeking to raise a maximum of $725,000 
(181,250 shares at $4.00 per share).  There was no minimum for this private 
placement.  The Company has received $57,000 as of September 30, 1997 through
this offering.  These proceeds were used for the purchase of new computer 
equipment and software, marketing expenses and to fund working capital needs.
Costs incurred in raising these additional funds are expected to total 10,000.

 SBS had borrowed $157,000 as of September 30, 1997 from related parties to 
finance the Company's operations and capital investments.  These borrowings 
were made on a short term basis.  SBS also entered into capital
leases to finance the acquisition of $91,964 of equipment during fiscal 1997.

 The Company refinanced certain existing indebtedness to two shareholders on 
January 10, 1996.  One of the shareholders is now Chairman of the Board of 
Directors and owns or controls 243,799 shares of the Company's Common Stock.
The principal amount of the note is $595,272, including accrued interest on 
prior indebtedness of $192,072.  Interest is payable at 10% and the note is 
due on or before October 1, 2001.

 On January 3, 1997, in anticipation of obtaining a line of credit from a 
lending institution, the related party restated their note and entered into 
a subordination agreement.  The related party required the note to be
amended to bear interest at the rate of 10% per annum compounded daily.  At 
the same time the related party exchanged $150,000 of the debt for 37,500 
shares of Common Stock at a price of $4.00 per share.

 On May 15, 1996, three officers of the Company purchased $93,600 of the note
payable to related parties from the related parties in exchange for notes 
payable to related parties from the officers.  The officers exchanged
the notes for 390,000 shares of Common Stock at a price of $0.24 per share.

 On July 31, 1996, the Chief Financial Officer of the Company purchased 
$32,000 of the note payable to related parties from the related parties in 
exchange for a note payable to the related parties from the officer.  The
Chief Financial Officer exchanged the note to exercise a warrant to purchase 
160,000 share of Common Stock of the Company at a price of $0.20 per share.


                                 -11-
<PAGE>


 On December 10, 1997 the Company closed on a loan  of $1,500,000 with 
Sirrom Investments, Inc. (Sirrom).  The proceeds of the loan will be 
utilized for working capital, to pay a portion of the existing indebtedness
to certain shareholders, and to pay off the senior secured bank credit
facility.  The loan provides for a stated interest rate of 13.75% per annum, 
payable monthly.  Principal is due on December 10, 2002.

 The loan, which is secured by all of the assets of the Company, is
subordinate only to the existing $500,000 bank line of credit.  The bank line
of credit remains available to the Company under the terms previously
described.

 In connection with the loan, the Company issued warrants to Sirrom to 
purchase up to 13% of the Common Stock of the Company at a purchase price of 
$.01 per share.   There are certain provisions of the loan agreement
which could increase the  amount of warrants to be issued.  
The Company is required to issue warrants up to an additional 5% of the
Common Stock of the Company if the Company does not meet certain income 
performance measures for the yeatr ending September 30, 1998, and up to
an additional 3.75% if the loan is not paid by December 10, 2002.

 The Company also paid certain fees in obtaining the loan, including a 
$37,500 fee to Sirrom to process the loan, a $105,000 fee to an investment 
banking firm that assisted in obtaining the loan and closing the loan, and
fees to attorneys of approximately $35,000.

  Impact of the year 2000 Issue
  -----------------------------
  The Year 2000 Issue is the result of computer programs being written using 
two digits rather than four to define the applicable year.  Any of the 
Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000.  This could 
result in a system failure or miscalculations causing disruptions of 
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

  The Company's proprietary database application, the basis for its core 
business functions, has been developed so that it will properly utilize 
dates beyond December 31, 1999.  In addition, the Company has recently 
purchased new accounting software and this software has also been developed 
to properly utilize dates beyond December 31, 1999.  The Company's 
Information Technology personnel have reviewed the remaining software and 
hardware applications used by the Company and determined that no additional 
work is required to remediate the Company's Year 2000 issue.

  The Company has initiated communications with all of its significant 
suppliers and large clients to determine the extent to which the Company is 
vulnerable to those third parties' failure to remediate their own Year 2000 
Issue.  There can be no guarantee that the systems of other companies on 
which the Company's systems rely will be timely converted, or that a failure 
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have material adverse effect on the Company.  
The Company has determined it has no exposure to contingencies related to 
the Year 2000 Issue for the products it has sold.


New Accounting Standards
-------------------------
 In February of 1997, the FASB issued Statements of Financial Accounting 
Standards No. 128 Earnings per Share ("SFAS 128") effective for years ending 
after December 15, 1997.  Statement No. 128 specifies the computation, 
presentation, and disclosure requirements for earnings per share ("EPS") 
for entities with publicly held Common Stock or potential Common Stock.  The 
Company will adopt SFAS 128 in its financial statements for the quarter
ending December 31, 1997.  The adoption is not expected to have a material 
effect on the reported earnings (loss) per share of the Company.

 In June of 1997, the FASB issued Statements of Financial Accounting 
Standards No. 130.  Reporting Comprehensive Income ("SFAS 130"), and No. 131.
Disclosure About Segment of An Enterprise and Related Information 
("SFAS 131"), effective for years beginning after December 15, 1997,  SFAS 
130 established standards for reporting and display of comprehensive income 
and its components in a full set of general-purpose financial statements.  
The Company has not yet adopted SFAS 130.  The Company will comply with the 
reporting and display requirements under this statement when required.  SFAS 
131 establishes standards for reporting information about operating segments 
and the methods by which such segments were determined.  The Company
has not yet adopted SFAS 131.  As the Company currently operates within one 
industry segment, the reporting of such information is not expected to be 
significant. 


                                   -12-
<PAGE>
Item 7.  Financial Statements
-----------------------------
                   INDEPENDENT AUDITORS' REPORT
                   ----------------------------      
    
    Board of Directors
    Data National Corporation
    
    We have audited the consolidated balance sheets of Data National 
    Corporation and subsidiaries as of September 30, 1997 and 1996, and the 
    related consolidated statements of operations, shareholders' equity, and 
    cash flows for the years then ended.  These consolidated financial
    statements are the responsibility of the Company's management.  Our 
    responsibility is to express an opinion on these consolidated financial 
    statements based on our audit.
    
    We conducted our audit in accordance with generally accepted auditing 
    standards.  Those standards require that we plan and perform the audit 
    to obtain reasonable assurance about whether the financial statements 
    are free of material misstatement.  An audit includes examining, on a 
    test basis, evidence supporting the amounts and disclosures in the 
    financial statements.  An audit also includes assessing the accounting 
    principles used and significant estimates made by management, as well as 
    evaluating the overall financial statement presentation.  We believe 
    that our audit provides a reasonable basis for our opinion.
    
    In our opinion, the consolidated financial statements referred to above 
    present fairly, in all material respects, the consolidated financial 
    position of Data National Corporation and subsidiaries as of September 
    30, 1997 and 1996, and the results of their operations and their cash 
    flows for the years then ended, in conformity with generally accepted 
    accounting principles.
    
    
    
    
                                         KPMG Peat Marwick LLP
      
    
    Denver, Colorado
    December 10, 1997
    




                                  







                                  -13-
<PAGE>  
               DATA NATIONAL CORPORATION AND SUBSIDIARIES

                     Consolidated Balance Sheets

                     September 30, 1997 and 1996

                          Assets    (Note 4)
<TABLE>
<CAPTION>
                                                       1997           1996    
                                                    ---------      ---------
<S>                                               <C>            <C>
Current Assets
      Cash and cash equivalents. . . . . . . . . . .$  15,792      $   4,441
    Receivables
    Trade less allowance for bad debts of 
         $5,077 in 1997 and $5,077 in 1996. . . . . . 320,520        342,592
    Other  . . . . . . . . . . . . . . . . . . . . . .  8,104         15,305 
    Inventory, at cost . . . . . . . . . . . . . . . . 53,781         63,354
    Prepaid postage . . . . . . . . . . . . . . . . .  45,040            394
    Prepaid expenses . . . . . . . . . . . . . . . . . 54,029         35,129
                                                      -------        -------
    Total current assets . . . . . . . . . . . . . . .497,266        461,215

Property and equipment, at cost (Note 3) . . . . . . .884,807        724,414
    Less accumulated depreciation. . . . . . . . . . (466,654)      (373,709)
                                                     ---------      ---------
                                                      418,153        350,705
                                                      -------        -------
Deferred computer software development costs . . . .  196,403        169,977
         
Other assets . . . . . . . . . . . . . . . . . . . .   44,051         12,871
                                                   ----------     ----------
                                                   $1,155,873     $  994,768 
                                                   ==========     ==========

           Liabilities and Shareholders' Deficit
           -------------------------------------
Current Liabilities
    Short-term borrowings - related parties 
          (Note 2) . . . . . . . . . . . . . . . . $  157,000     $  155,000
    Short-term borrowings - bank line of credit 
          (Note 4) . . . . . . . . . . . . . . . .     74,723              - 
    Current portion - capital lease obligations 
          (Note  5). . . . . . . . . . . . . . . .    113,154         75,401
    Accounts payable . . . . . . . . . . . . . . .    268,939        138,426
    Accrued interest . . . . . . . . . . . . . . .     48,684          7,242
    Accrued expenses . . . . . . . . . . . . . . .     93,145         74,029
    Deferred revenue . . . . . . . . . . . . . . .     87,728         26,419
                                                      -------        -------
      Total current liabilities. . . . . . . . . .    843,373        476,517
                                                      -------        -------
Note payable to related parties (Note 2) . . . . .    595,272        743,472
Capital lease obligations, net of current portion 
          (Note 5) . . . . . . . . . . . . . . . .    124,491        155,958    
Shareholders' Deficit
    Common stock $.001 par value, authorized 
    100,000,000 shares; 1,582,165 and 1,498,190 
    shares issued and outstanding at September 30, 
    1997 and 1996, respectively (Note 7). . . . . .     1,582          1,498
    Additional paid-in capital . . . . . . . . . . .  516,761        188,050
    Accumulated deficit. . . . . . . . . . . . . . . (925,606)      (570,727)
                                                     ---------      ---------
                                                     (407,263)      (381,179)

                                  -14-
<PAGE>
Commitments
                                                   $ 1,155,873    $  994,768
                                                   ===========    ==========
_______________________________________  
</TABLE>
See accompanying notes to consolidated financial statements.



























                                  -15-
<PAGE>
                DATA NATIONAL CORPORATION AND SUBSIDIARIES

                   Consolidated Statements of Operations

                 Years Ended September 30, 1997 and 1996

<TABLE>
<CAPTION>
                                                      1997           1996      
                                                    --------       ---------
<S>                                               <C>             <C>
Net sales                                          $3,897,350      $2,666,148

Cost of sales
  Materials, postage, labor and other costs         2,509,492       1,455,475
  Depreciation and amortization                        75,454          44,819 
                                                    ---------       ---------
     Gross profit                                   1,312,404       1,165,854

Selling and marketing expense                         367,881         287,676
General and administrative expense                  1,011,914         751,472
Impairment of software development costs              113,661               -
Depreciation and amortization                          24,447           9,753
                                                    ----------        -------
      Operating income (loss)                        (205,499)        116,953

Other income (expense)
 Interest and other income                              1,817          16,714
 Interest expense, including amounts to 
   related parties of $68,020 in 1997 and 
   $83,988 in 1996                                   (135,875)        (95,546)
Other expense                                         (15,322)         (1,323)
                                                     ---------        --------
                                                     (149,380)        (80,155)
                                                   -----------      ----------
Net income (loss)                                  $ (354,879)      $  36,798 
                                                   ===========      =========
Earnings (loss) per share                          $    (0.23)      $    0.04 
                                                   ===========      =========
Weighted average shares outstanding                 1,544,966       1,040,922   
                                                   ===========      =========

</TABLE>















                                                                           
                                 -16-
<PAGE>
----------------------------------------------
See accompanying notes to consolidated financial statements.

        






























                                  -17-
<PAGE>
                 DATA NATIONAL CORPORATION AND SUBSIDIARIES

               Consolidated Statement of Shareholders' Equity

                    Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>

                                                       Additional
                                    Common Stock        Paid-in    Accumulated
                                   Shares    Amount     Capital      Deficit  
                                  --------   -------   ---------   -----------
<S>                              <C>         <C>       <C>         <C>
Balance, October 1, 1995 . .       818,190    $  818    $ 31,929    $(607,525) 

Issuance of common stock for 
 reduction of note payable to 
 related parties. . . . . . .      550,000       550     125,051            -

Issuance of common stock for 
 services . . . . . . . . . .      137,500       138      32,862            - 

Common stock repurchased and 
 retired. . . . . . . . . . .       (7,500)       (8)     (1,792)           -  

Net income . . . . . . . .               -         -           -       36,798
                                  ---------    ------    --------    --------
Balance, September 30, 1996.      1,498,190    1,498     188,050     (570,727)

Issuance of common stock for 
 reduction of note payable to 
 related parties . . . . . . .       37,500       38     149,962            -

Issuance of common stock for 
 services . . . . . . . . . .           975        1       3,899            -

Issuance of common stock,
 net of offering costs of $7,105 .   45,500       45     174,850            -

Net loss                                  -        -           -     (354,879)
                                  ---------  -------    --------    ----------
Balance, September 30, 1997. . .  1,582,165  $ 1,582    $516,761    $(925,606) 
                                  =========  =======    ========    ==========
</TABLE>

















                                                                            
                                  -18-
<PAGE>
---------------------------------------------
See accompanying notes to consolidated financial statements.




























                                  -19-
<PAGE>
                 DATA NATIONAL CORPORATION AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                    Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>

                                                       1997          1996    
                                                      ------        ------
<S>                                               <C>             <C>
Cash flow from operating activities
    Net income(loss). . . . . . . . . . . . . .    $  (354,879)    $  36,798
    Adjustments to reconcile net income to cash 
     flow from operating activities
      Depreciation and amortization . . . . . . . .     99,901        54,572
      Impairment of software development costs         113,661             -    
      Common stock issued for services. . . . . . .      3,900        33,000
      Changes in assets and liabilities
      (Increase) decrease in trade receivables. . .     22,072       (97,660)
      (Increase) decrease in other receivables. . .      7,201        (9,316)
      (Increase) decrease in inventory. . . . . . .      9,573       (15,662)
      (Increase) decrease in prepaid postage. . . .    (44,646)        1,098
      (Increase) in prepaid expenses. . . . . . . .    (13,266)      (31,988)
      (Increase) in other assets. . . . . . . . . .    (19,588)       (3,175)
      Increase in accounts payable. . . . . . . . .    130,514        76,649
      Increase in accrued interest. . . . . . . . .     41,443         7,242
      Increase in accrued expenses. . . . . . . . .     19,116        53,959
      Increase (decrease) in deferred revenue . . .     61,309      (106,059)
                                                       --------     ---------
          Total adjustments . . . . . . . . . . . .    431,190       (37,340)
                                                       -------      ---------
      Cash provided by (used in) operating activities   76,311          (542)
                                                       -------      ---------
Cash flow from investing activities
    Purchases of property and equipment . . . . . .    (68,429)      (26,399)
    Deferred computer software development costs. .   (140,089)     (169,977)
                                                      ---------     ---------
    Cash used in investing activities . . . . . . .   (208,518)     (196,376)
                                                      ---------     ---------
Cash flow from financing activities
    Short-term borrowings from related parties. . .    358,000       340,000
    Short-term borrowings from bank line of credit.  3,085,949             - 
    Capitalized loan fees . . . . . . . . . . . . .    (18,548)            -
    Sale of common stock, net of offering costs . .    174,895             -
    Increase in note payable related party. . . . .      1,800             -
    Repayment of short-term borrowings from related 
     parties . . . . . . . . . . . . . . . . . . . .  (356,000)      (185,000)
    Repayment of short-term borrowings from bank 
     line credit . . . . . . . . . . . . . . . . . .(3,011,226)             -
    Repayment of capital lease obligations. . . .      (91,312)       (43,200)
    Common stock repurchased and retired. . . . .            -         (1,800)
                                                     ----------      ---------
    Cash provided by financing activities . . . .      143,558        110,000
                                                     ----------      ---------
Increase (decrease) in cash and cash equivalents.       11,351        (86,918)
Cash and cash equivalents, beginning of year. . .        4,441         91,359
                                                     ---------       --------
Cash and cash equivalents, end of year. . . . . .    $  15,792       $  4,441
                                                     =========       ========
Supplemental cash flow information
    Property and equipment acquired under 
      capital leases . . . . . . . . . . . . . . .   $  91,964       $254,864
                                                     =========       ========
    Common stock issued for reduction of note 
      payable to related parties. . . . . . . . . .  $ 150,000       $125,601
                                                     =========       ========
    Income taxes paid . . . . . . . . . . . . . . .  $       -       $      - 
                                                     =========       ========
                                  -20-
<PAGE>
    Interest paid . . . . . . . . . . . . . . . . .  $  87,985       $ 87,612
                                                     =========       ========
</TABLE>
--------------------------------------------                                
See accompanying notes to consolidated financial statements.
















                                  -21-
<PAGE>
                   DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

(1)   Organization, Operations, and Significant Accounting Policies
-------------------------------------------------------------------   
      Organization and Operations
      ---------------------------
      Data National Corporation (DNC) was incorporated under the laws of the 
State of Colorado on  November 5, 1982.  The Company currently owns 97.8% of 
the outstanding Common Stock of Data National Inc. (DNI).  DNI owns 100% of 
the shares Service Business Systems, Inc. (SBS) and National COM-LINK 
Systems, Inc. (NCL).  The Company acts as a holding company for DNI and its 
subsidiaries and coordinates their activities.
      
      NCL receives royalties from licensing a trademark and, in 1996, 
recognized revenue that was previously deferred as a result of the 
termination of a contract for the sale of hardware and software products.
   
      The Company derives revenue from products and services provided by its 
subsidiary, Service Business Systems (SBS), which is the Company's only 
operating subsidiary.  Since inception, SBS has provided database marketing 
services to the automotive industry (service stations of major oil companies 
and independent auto repair facilities).  These clients accounted for 83% and
88% of the Company's net sales in fiscal 1997 and fiscal 1996, respectively. 
In fiscal 1996, SBS began expanding its client base to include auto 
dealerships and customers in the financial services and tourism industries.
   
      Principles of Consolidation
      ---------------------------   
        The consolidated financial statements include the accounts of the 
Company and its wholly-owned subsidiaries.  All intercompany accounts and 
transactions are eliminated in consolidation.
   
      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.

                                        -22-
<PAGE>                                                         
                   DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

     Reclassifications
      -----------------     
           Certain prior year amounts have been reclassified to conform to 
the 1997 presentation.
   
      Cash Equivalents
      ----------------   
        The Company considers investments with an original maturity of three 
months or less to be cash equivalents.
      
      Fair Value of Financial Instruments
      -----------------------------------     
           The Company estimates the fair value of its monetary assets and 
liabilities based upon existing  interest rates related to such assets and 
liabilities compared to current rates of interest for instruments with a
similar nature and degree of risk.  The Company estimates that the carrying 
value of all its monetary assets and liabilities approximates fair value as 
of September 30, 1997.
      
        Inventory
        ---------   
        Inventory consists of card stock and is carried at the lower of cost 
or market.  Cost is determined on a first-in-first-out basis.
           
        Property and Equipment
        ----------------------
        Property and equipment is stated at cost, and is depreciated over 
useful lives ranging from 5 to 7 years, primarily using the straight-line 
method.
      









                                  -23-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                         September 30, 1997 and 1996

        Impairment of Long-Lived Assets
        -------------------------------      
           Statement of Financial Accounting Standards No. 121 Accounting for 
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed 
of (SFAS No. 121), was adopted by the Company effective October 1, 1996.  SFAS 
No. 121 requires that impairment losses be recorded on long-lived assets used
in operations when indicators of impairment are present and the 
undiscounted future cash flows estimated to be generated by those assets 
are less than the assets carrying amount.  The adoption
of SFAS No. 121 had no effect on the Company's financial statements.
      
        Deferred Computer Software Development Costs
        --------------------------------------------
      The Company is developing a proprietary database application as the 
basis for its core business functions.  The Company has capitalized $310,064 
as deferred computer software development costs as of September 30, 1997.  
The costs deferred include the costs of outside consultants and salary and
benefit costs of programmers hired upon completion of the design phase, to 
complete the programming of this software.  
      
      During the fourth quarter of 1997 the Company performed a functional 
evaluation of the project and the costs capitalized to date and determined 
that costs previously capitalized for certain modules should be written 
down as the modules did not perform as designed and were abandoned.  This 
write down totaled $113,661.  
      
      Upon completion of the software, the capitalize costs will be 
amortized using the straight-line method over a useful life of 3 years.
      
      Other Assets
      ------------
      Costs of perfecting the Company's interests in its trademarks have 
been capitalized as part of the cost of the trademarks.  The Company 
capitalized $9,329 in fiscal 1997 which is being amortized
over an estimated life of 10 years.
      



                                 -24-
<PAGE>

            DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                         September 30, 1997 and 1996

      The Company obtained a revolving loan facility from Norwest Business 
Credit on January 3, 1997.  The Company incurred $18,458 of costs to obtain 
this facility, which have been capitalized.  These costs are being amortized 
over 2 years which is the initial term of the facility.  Accumulated 
amortization totaled $6,956 at September 30, 1997.
   
        Deferred Revenue
       -----------------

        Prepayments for products are recorded as deferred revenue until the 
products are delivered.
   
     Reverse Stock Split
     -------------------
      All share amounts, share prices, and per share amounts have been 
adjusted to give effect to a 400 to 1 reverse stock split that was effective 
on September 30, 1996.
      
     Sales and Credit Risk
     ---------------------   
        Sales are recognized upon completion of services or mailing of 
marketing materials, as applicable.
   
        Sales are made by extending credit to customers on a short-term 
basis, using informal credit evaluations, and are on an uncollateralized 
basis.
   
     Advertising
     -----------
        The Company expenses advertising costs as incurred.  Such costs 
amounted to $13,087 and $10,415 in fiscal 1997 and fiscal 1996, respectively.
      







                                   -25-
<PAGE>


                 DATA NATIONAL CORPORATION AND SUBSIDIARIES
                 Notes to Consolidated Financial Statements
                       September 30, 1997 and 1996

     Income Taxes
     ------------      
           The Company utilizes the asset and liability method of accounting 
for income taxes, as prescribed by Statement of Financial Accounting 
Standards No. 109 (SFAS 109).  Under this method, deferred tax assets and 
liabilities are recognized for the future tax consequences attributable to 
differences between the financial statement carrying amounts of existing 
assets and liabilities and their respective tax bases.  Deferred tax assets 
and liabilities are measured using enacted tax rates expected to apply in the
years in which these temporary differences are expected to be recovered or 
settled.  Changes in tax rates are recognized in income in the period that 
includes the enactment date.

     Stock-Based Compensation
     ------------------------
            In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS 123), effective for the fiscal years beginning after
December 15, 1995.  This statement defines a fair value method of accounting
for employee stock options and encourages entities to adopt that value
method of accounting for its stock compensation plans.  SFAS 123 allows an
entity to continue to measure compensation costs for these plans using the
intrinsic value method of accounting as prescribed in Accounting Pronouncement
Bulletin Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).
The Company has elected to continue to account for its employee stock
compensation plans as prescribed under APB 25.  The pro forma disclosure
of net loss and loss per share required for SFAS 123 are included in Note 7.
      
     Net Earnings (Loss) Per Share of Common Stock
     ---------------------------------------------      
           Net earnings (loss) per share is computed based on the weighted 
average number of common shares, and when dilutive, common equivalent shares 
outstanding during the year.  
   




                                   -26-
<PAGE>

                 DATA NATIONAL CORPORATION AND SUBSIDIARIES
                 Notes to Consolidated Financial Statements
                       September 30, 1997 and 1996

(2)   Related Party Transactions
--------------------------------   
     Short-Term Borrowings - Related Parties
     ---------------------------------------
        The Company has borrowed funds to meet short-term working capital 
needs from two of its shareholders.  Interest on the unpaid balance is at 
the rate of 10% per annum.  The principal balance is payable on December 31, 
1997.

         Interest expense on the short-term borrowings to related parties 
amounted to $4,513 and $1,414 in fiscal 1997 and fiscal 1996, respectively.

         Note Payable to Related Parties
         -------------------------------
         The Company refinanced certain existing indebtedness to two 
shareholders on January 10, 1996.  One of the shareholders is now Chairman
of the Board of Directors and owns or controls 240,049 shares of the 
Company's Common Stock.  The principal amount of the note is $595,272,
including accrued interest on prior indebtedness of $192,072.  Interest is
payable at 10% and the note is due on or before October 1, 2001.

        On January 3, 1997, in anticipation of obtaining a line of credit 
from a lending institution, the related party restated their note and entered
into a subordination agreement.  The related party required the note to be
amended to bear interest at the rate of 10% per annum compounded daily.  At 
the same time the related party exchanged $150,000 of the debt for 37,500 
shares of Common Stock at a price of $4.00 per share under the terms of a 
private placement of its common stock.  
   
      Interest expense on the note payable to related parties amounted to 
$63,507 and $82,574 in fiscal 1997 and fiscal 1996, respectively.
           
      Purchase of Note Payable to Related Parties and Exchange of Note for 
      Common Stock
      --------------------------------------------------------------------     
      On May 15, 1996, three officers of the Company purchased $93,600 of 
the note payable to related parties from the related parties in exchange for 
notes payable to related parties from the officers.  The officers exchanged
the notes for 390,000 shares of Common Stock at a price of $0.24 per share.
                                 -27-   
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                         September 30, 1997 and 1996

        On July 31, 1996, the Chief Financial Officer of the Company 
purchased $32,000 of the note payable to related parties from the related 
parties in exchange for a note payable to the related parties from the
officer. The Chief Financial Officer exchanged the note to exercise a warrant
to purchase 160,000 shares of Common Stock of the Company at a price of 
$0.20 per share.
      
        Lease Payments to Related Party
        -------------------------------      
           The son of the Chief Financial Officer leased equipment to the 
Company under three capital leases, which expired as of September 
30, 1996.
      
(3)   Property and Equipment
----------------------------
        A summary of property and equipment at September 30, 1997 and 1996 
follows:
   
                                                     1997        1996    
                                                ----------    ----------
  Furniture and fixtures                        $   52,832    $   35,593
  Office equipment                                 157,568       121,120
  Production equipment                             664,349       557,643
  Vehicles                                          10,058        10,058
                                                   -------       -------
                                                   884,807       724,414
  Less accumulated depreciation                   (466,654)     (373,709)
                                                 ----------    ----------
                                                 $ 418,153     $ 350,705
                                                 =========     =========

(4) Bank Line of Credit
-----------------------   
On January 3, 1997 the Company obtained a $500,000 revolving loan facility 
with Norwest Business Credit. Under the terms of this facility, the Company 
and SBS pledged all of their assets to collateralize the financing.  As a
condition of the financing , the related party subordinated its debt to 
Norwest.  The facility bears interest at the rate of 5% over Norwest's prime 

                                 -28-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                         September 30, 1997 and 1996

lending rate with a minimum interest charge of $7,500 per quarter.  Advances
under the facility are limited to 80% of the eligible accounts receivable.  
As of September 30, 1997 approximately $125,000 was available under the 
facility.  The facility expires on December 31, 1998.

Interest expense attributable to this facility amounted to $25,036 in fiscal 
1997. 

(5)   Capital Lease Obligations
-------------------------------   
        The Company leases various equipment under capital leases.  Following 
is a summary of minimum lease payments required under capital leases as of 
September 30, 1997:
   
       1998                                            $140,105
       1999                                             103,318
       2000                                              27,270
       2001                                               6,249  
       2002                                               1,330
                                                       --------
      Total minimum commitments                         278,272
         Less portion representing interest             (40,627)
                                                       ---------
     Present value of net minimum commitments           237,645
          Less current portion                         (113,154)
                                                       ---------
      Non-current portion                              $124,491

     Assets held under capital leases at September 30, 1997 and 1996 are 
summarized as follows:

                                                         1997        1996    
                                                     ---------    ---------
  Assets at cost . . . . . . . . . . . . . . . . . . $ 346,828    $ 254,864
           Less accumulated depreciation . . . . . .   (73,783)     (21,809)
                                                     ----------   ----------
                                                     $ 273,045    $ 233,055
                                                     =========    =========
  Amortization of capital leases is included in depreciation expense.
                                  -29-      
<PAGE>

               DATA NATIONAL CORPORATION AND SUBSIDIARIES
               Notes to Consolidated Financial Statements
                       September 30, 1997 and 1996
      
          Interest expense attributable to capital leases of the Company is 
included in interest expense in the accompanying consolidated financial 
statements and amounted to $41,931 and $12,151 in fiscal 1997 and fiscal 
1996, respectively.
      
(6)   Commitments
-----------------
       Office Lease
       ------------
       The Company occupies office space under a lease that expires in 
February 1999 and requires monthly payments of $6,375.  Following is a 
summary of future rental commitments under this lease:
   
            1998    $76,500
            1999    $31,875
   
        Rent expense amounted to $63,649 in fiscal 1997 and $37,836 in 
fiscal 1996.
      
        Incentive Plan
        --------------        
           During fiscal 1996, the Board of Directors offered an incentive 
plan, which is made available to all of the Company's full time employees as 
an incentive to achieve improved profitability.  Pursuant to the terms of
the Plan, the Company will contribute an amount equal to six percent of the 
Company's net profit on a calendar quarterly basis beginning January 1, 1996.
 
 Full time employees of the Company each receive a number of shares in the Plan 
based upon their respective categories of employee classification.  As the 
Plan is on a calendar year basis and the financial statements are for the 
fiscal year ended September 30, 1996 net income for the quarter ended 
December 31, 1995 of $105,744 attributable to seasonal sales of holiday 
greeting cards, was not included in the incentive plan in 1996.  During the 
following three quarters the Company had net losses totaling $68,946.  
Therefore, no shares were contributed to the 1996 incentive plan.  During 
the first calendar quarter of 1997 $8,175 was contributed to the Plan based 
on the Company's profitability for that quarter.  No additional contributions
have been made to the Plan as the Company was not profitable during the two 
quarters from April 1, 1997 through September 30, 1997.
                                -30-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

   Profit Sharing Plan
   -------------------
           In August 1992, the Company adopted a 401(k) Profit Sharing Plan, 
which covers all employees with three months service and who are at least 21 
years old.  A participant may defer a maximum of 15% of his compensation to 
the statutory limit, and the Company matches the first 5% of the amount 
deferred. As of January 1, 1997 this match was increased to the first 10% of 
the amount deferred.  In fiscal 1997 and fiscal 1996, such matching 
contributions amounted to $3,331 and $1,435, respectively.
          
Common Stock
------------    
     Stock Options
     -------------
    In 1997 the Company adopted the 1997 Stock Option Plan.  Under the 
terms of the plan the Company may grant options to its employees to purchase 
up to 250,000 shares of Common Stock.  Options granted under the Plan may be 
either Incentive Stock Options or Non-Qualified Stock Options.  In accordance
with the terms of the Plan, the exercise price of each incentive stock 
option will be determined by the Stock Option Committee (the Committee), 
except that the price shall not be less than the fair market value of the 
Company's Common Stock on the date of grant.  For options issued as 
non-qualified stock options, the exercise price will be determined in good 
faith by the Committee in its discretion except that if there is a public 
market for the common shares, the exercise price shall be the mean of the 
bid and ask price on the date of grant.  The maximum term of options granted 
is 10 years and vesting is generally over a four-year period.












                                   -31-
<PAGE>

                   DATA NATIONAL CORPORATION AND SUBSIDIARIES
                    Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

      A summary of the status of the Company's  stock option plan as 
of September 30, 1997, and changes during the year then ended are presented 
below:
      
          1997
          ----                                              Weighted-Average
                                                Shares      Exercise Price
                                                ------     ----------------
          Outstanding at beginning or year         -               -
          Granted                               209,500          $6.15
          Exercised                                -               -
          Forfeited                                -               -
                                                -------      
          Outstanding at end of year            209,500          $6.15
                                                =======
          Options exercisable at year-end        84,500          $4.00
          
          Weighted-average fair value of
          options granted during the year         $1.02
   

          The following table summarizes information about  stock 
options outstanding at September 30, 1997:
      
                       Options Outstanding               Options Exercisable
          
Range of               Weighted-Average   Weighted-                 Weighted-
Exercise    Number         Remaining        Average       Number      Average
Prices    Outstanding     Contractual      Exercise     Exercisable  Exercise
                              Life          Price                      Price
-------   -----------     -----------      --------     -----------  ---------
$4-6        153,250        9.9 years          4            84,500        $4
 7-9         18,750         10                8                 -         -
10-12        18,750         10               12                 -         -
13-16        18,750         10               16                 -         -
            -------                                        ------
 4-16       209,500         10             6.15            84,500         4
            =======                                        ======

                                    -32-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

   At September 30, 1997 the Company had one fixed option plan which is 
described above.  The Company did not have a stock option plan during 1996.  
The Company applies APB Opinion 25 and related interpretations in
accounting for its plan.  As all employee stock option grants were at or 
above fair market value, no compensation cost has been recognized for the 
plan.  Had compensation cost for the Company's fixed option plan been 
determined on the fair value at the grant dates for awards under the plan 
consistent with the method of FASB Statement 123, the Company's current year 
net income and earnings per share would have been reduced to the pro forma 
amounts indicated below:                                                
       
                                                  1997   
                                                 ------
       Net Loss:
          As  reported                        $354,879
          Pro forma (1)                        441,375
      
      Net loss per share:
          As reported                            $0.23
          Pro forma                               0.29
      


















                                    -33-
<PAGE>

                   DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996
       
The fair value of each option grant is estimated on the date of grant using 
the Black-Scholes option-pricing model with the following weighted average 
assumptions used for grants in 1997:  dividend yield of 0% for all grants; 
expected volatility of .001, risk-free interest rates of 6% for all grants; 
and expected life of 5 years.
     
     During 1997 the Company issued options to purchase 18,750 shares at $8 
per share; 18,750 shares at $12 per share and 18,750 shares at $16 per share,
all of which were priced above the fair market value of the Company's stock 
at the date of grant.

     Other
     -----
   On May 15, 1996, the Company entered into agreements with three officers 
of the Company tosell them shares of its Common Stock at $0.24 per share.  
Certain restrictions have been placed on the transfer of these shares and 
lapse with respect to one-third of the shares annually on August 1 beginning
on August 1, 1996.  The restrictions lapse if the officer is an employee on 
August 1, and has not had a break in service.  Restrictions also lapse upon 
one of the following events:  sale of all or substantially all of the assets 
of the Company, the officer's death, permanent total disability or retirement
or, the Board determines that a significant corporate event has occurred 
(merger consolidation, etc.).  If an officer terminates employment with the 
Company, all shares still subject to the restrictions shall be sold by the 
officer to the Company at the original purchase price.
      
          The Vice-President, Marketing resigned as of August 23, 1996, and 
the Company repurchased his shares.
      
          On July 31, 1996, the Chief Financial Officer exercised warrants 
to purchase 160,000 shares of Common Stock at a purchase price of $0.20 per 
share.  The warrants were assigned to the Chief Financial Officer from a 
related party in 1993.
      
          In December of 1996 the Company commenced a private placement of 
its Common Stock.  Through this offering, which terminated on June 30, 1997, 
the Company has received $275,000:  $125,000 in cash and an additional 
$150,000 from a related party in the form of a reduction on the note payable 
to the related party.
                                     -34-      
<PAGE>

                   DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996
       

          On July 24, 1997 the Company commenced a private placement.  Under 
the terms of the offering, the Company is seeking to raise a maximum of 
$725,000 (181,250 shares at $4.00 per share).  There is no minimum for this 
private placement.  The Company has received $57,000 as of September 30, 
1997.
   
                                    
(8)   Major Customers
---------------------
        The following customers each accounted for more than 10% of sales in 
fiscal 1997 and fiscal 1996: 
                                                    % of Sales           
                                                --------------------
          Customer                              1997            1996
                                                ----            ----
              A                                 39.6              -
              B                                 19.3            40.0
              C                                  6.5            12.4
              D                                  4.1            10.8
      
 .(9)   Income Taxes
-------------------
        The tax effect of each type of temporary difference and carryforward 
that give rise to a significant portion of deferred tax assets at September 
30, 1997 and 1996, is as follows:
                                                           1997         1996
                                                         --------     -------
     Deferred Tax Assets
     Net operating loss carryforward                     $ 583,081  $ 486,982
     Allowance for doubtful accounts                         1,700      1,700
     Depreciation                                            3,538      1,091
     Accrued interest - note payable to related party       86,247     68,160
                                                          --------   --------
     Total Gross Deferred Tax Assets                       674,566    557,933
     Less valuation allowance                             (674,566)  (557,933)
                                                          ---------  ---------
     Net Deferred Tax Assets                              $      -   $      - 
                                                          =========  =========
                                      -35-
<PAGE>
                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996


     At September 30, 1997 the Company has net operating loss carryforwards 
which expire as follows:

          Expiration         Amount
          ----------       ----------
             1999         $   130,300
             2000             207,700
             2001              87,100
             2002              11,400
             2003             357,700
             2004             431,400
             2005             206,700
             2012             282,700
                          -----------
                           $1,715,000
                          ===========     
     A portion of the loss carryforwards, aggregating approximately
$437,000, are subject to separate return limitations.

     Income tax expense is different from amounts computed by applying the 
statutory Federal income tax  rate  to earnings (loss) before income taxes 
for the following reasons:

     
                                                         1997          1996   
                                                       --------      --------
Tax expense (benefit) at 34% of earnings (loss) 
    before income taxes                               $(120,658)     $ 12,511
     Change in valuation allowance for net
        deferred tax assets                             116,633       (14,262)
     Other                                                4,025         1,751
                                                      ---------      ---------
     Income tax expense (benefit)                     $       -      $      -
                                                      =========      =========




                                     -36-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

(10) Subsequent Event
---------------------
On December 10, 1997 the Company closed on a loan  of $1,500,000 with Sirrom 
Investments, Inc. (Sirrom).  The proceeds of the loan will be utilized for 
working capital, to pay a portion of the existing indebtedness to certain
shareholders, and to pay off the senior secured bank credit facility.  The 
loan provides for a stated interest  rate of 13.75% per annum, payable 
monthly.  Principal is due on December 10, 2002.

The loan, which is secured by all of the assets of the Company, is 
subordinate only to the existing $500,000 bank line of credit.  This bank 
line of credit remains available to the Company under the terms as described 
in Note 4.

In connection with the loan, the Company issued warrants to Sirrom to 
purchase up to 13% of the Common Stock of the Company at a purchase price of 
$.01 per share.  There are certain provisions of the loan agreement
which could increase the amount of warrants to be issued.  The Company is 
required to issue warrants up to an additional 5% of the Common Stock of the 
Company if the Company does not meet certain income performance measures 
for the year ending September 30, 1998, and up to an additional 3.75% if the 
loan is not paid by December 10, 2002.

The Company also paid certain fees in obtaining the loan, including a 
$37,500 fee to Sirrom to process the loan, a $105,000 fee to an investment 
banking firm that assisted in obtaining the loan, and fees to attorneys
of approximately $35,000.

Item 8. Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure
----------------------------------------------------------------------- 
     The Company engaged the firm of William G. Lajoie, P.C., to audit its 
consolidated financial statements for the years ended September 30, 1993, 
1994, and 1995.  There were no reportable disagreements with that firm, and
its reports for 1993, 1994, and 1995 were unqualified.

     In 1996, the Company engaged the firm of KPMG Peat Marwick LLP to audit 
its consolidated financial statements for the years ended September 30, 1996 
and 1997.
                                  -37-
 <PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

     These actions were approved by the Company's Board of Directors.

                                PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons; 
Compliance With Section 16(a) of the Exchange Act
----------------------------------------------------------------------
     The Directors and Officers of the Company at September 30, 1997, are 
as follows:

      Name             Age               Position
-----------------      ---      ----------------------------------
Ray E. Dillon III      44       Director and Chairman of the Board
Richard S. Simms       47       Chief Financial Officer, Director, Treasurer
Donald V. Warriner     47       Chief Executive Officer, President and 
                                Director
J. Scott Fowler        33       Chief Operating Officer and Secretary
Jeffrey W. Clayton     42       Vice President, Sales
David T. Clements      57       Vice President, Marketing & Business 
                                Development

     There is no family relationship between any director, executive officer,
or person nominated or chosen by the Company to become a director or 
executive officer.  All directors will hold office until the next annual 
meeting of shareholders.  There are no arrangements or understandings 
between any director of the Company or any other person or persons pursuant 
to which such director was or is to be selected as a director.

     The Board of Directors held seven meetings during the past fiscal year, 
and all of the members then on the Board were present at all of the meetings.
There were no meetings of any of the committees of the Board of Directors
during the past fiscal year.

     All officers of the Company hold office at the discretion of the Board 
of Directors.  Except as set forth herein, there is no arrangement or 
understanding between any such officer or any other person pursuant to which 
such officer is to be selected as an officer of the Company.  There is no 
person who is not a designated officer who is expected to make any 
significant contribution to the business of the Company.
                                    -38-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

     The following sets forth biographical information as to the business 
experience of each officer and director of the Company.

      Ray E. Dillon III has been a Director of the Company since March 23, 
1987, and of DNI since its inception. He is Vice President of Dillon 
Investments, a private trust management company for the Dillon family, where 
he has been employed since 1985.  Mr. Dillon devotes only such time to the 
business of the Company as is necessary in his position. 

      Richard S. Simms is the Vice President of Finance of the Company.  He 
was President and Chief Executive Officer of the Company from October 1990 
to July 1993.  He has been a Director of the Company since March 23,
1987, and of DNI since its inception.  Since 1986, he has practiced as a 
Certified Public Accountant and an independent financial advisor.  Mr. Simms 
devotes part of his time to the business of the Company and its subsidiaries.

  Donald V. Warriner is President and CEO of the Company as of August 1995.  
Prior to joining the Company, Mr. Warriner was employed by Cherry Creek 
Mortgage Company.  Prior to working for Cherry Creek, Mr. Warriner
was President of Bainbridge International, a company that was involved in 
acquisitions and buy outs of small to medium-sized firms.  Mr. Warriner 
devotes all of his time to the business of the Company.  Mr. Warriner holds 
a bachelors degree in accounting from Metropolitan State College and an MBA 
from the University of Colorado.

  J. Scott Fowler is the Chief Operating Officer of the Company.  From 1994 
to 1995 he was a consultant for Raymond James Consulting.  From 1993 to 1994 
he was a consultant for INFOVISA, Inc.  From 1987 to 1993 he was a Senior 
Management Consultant with Electronic Data Systems.  Mr. Fowler holds a 
Bachelor's degree in Industrial Engineering from the University of Texas and 
an MBA from the University of Colorado.

  Jeffrey W. Clayton is the Vice President of Sales for the Company.  From 
1996 to 1997 he was Director of Financial Services for dbIntellect/EDS.  
From 1995 to 1996 he was Vice President of Sales for Broadway & Seymour.  He 
was Vice President of Marketing and Sales for INFOVISA, Inc. from 1993 to 
1995.  From 1983 to 1993 he held positions with various divisions of EDS.


                                     -39-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

  David T. Clements is the Vice President of Marketing & Business Development
for the Company.  From 1992 to 1997 he was the Managing Director of Stratecom
Management Partners.  From 1981 to 1992 he was with Teradata Corporation in a
variety of positions including Senior Director of Communications.

Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
     Section 16(a) of the Securities Exchange Act of 1934 does not require 
any of the Company's officers, directors or persons who own more than ten 
percent of the Company's equity securities to file any reports of ownership 
or changes in ownership with the Securities and Exchange Commission because 
the Company does not currently have any class of securities registered under 
Section 12 of that Act. 

Item 10.  Executive Compensation
--------------------------------
     The following table sets forth the compensation paid or accrued to the 
Chief Executive Officer and each executive officer of the Company and its 
subsidiaries who received compensation in excess of $100,000 during the 
fiscal years ended September 30, 1997 and 1996:
                              Summary Compensation
                  Annual Compensation              Long-Term Compensation
                                  Other 
                                  Annual  Restricted                  All Other
Name and                          Compen-   Stock  Options/  LTIP      Compen-
Principle          Salary  Bonus  sation   Awarded   SARs   Payouts   sation
Position    Year    ($)     ($)    ($)       ($)     (#)      ($)      ($)
--------    ----   ------  ------ ------   -------  ------  -------   -------
Donald V. 
Warriner, 
CEO         1996   67,900  22,500
Donald V. 
Warriner, 
CEO         1997   91,990  23,782
Richard S. 
Simms, CFO  1996   48,000
Richard S. 
Simms CFO   1997   30,000

                                   -39-
<PAGE>                                  

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

                              Summary Compensation
                  Annual Compensation              Long-Term Compensation
                                  Other 
                                  Annual  Restricted                  All Other
Name and                          Compen-   Stock  Options/  LTIP      Compen-
Principle          Salary  Bonus  sation   Awarded   SARs   Payouts   sation
Position    Year    ($)     ($)    ($)       ($)     (#)      ($)      ($)
--------    ----   ------  ------ ------   -------  ------  -------   -------
J. Scott 
Fowler, 
COO         1996   49,900    7,800
J. Scott 
Fowler, 
COO         1997   73,612   11,387
Jeffrey W. 
Clayton, 
VP          1997    4,273   23,000
David T. 
Clements, 
VP         1997    47,600   50,000
________________________


















                                        -40-
<PAGE>


                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

     The following table shows certain information with respect to stock 
options granted to the Company's executive officers during the fiscal year 
ended 1997:


                   Option/SAR Grants in Last Fiscal Year
                            Individual Grants
      -----------------------------------------------------------------

                                     % of Total
            Number of Securities    Options/SARs    Exercise or
            Underlying Options /  Granted to Emps.   Base Price   Expiration
             SARs Granted (#)     in Fiscal Year      ($/Sh)        Date
------------------------------------------------------------------------------
Donald V. 
Warriner           0                      N/A           N/A           N/A

Richard S. 
Simms              0                      N/A           N/A           N/A

J. Scott 
Fowler             0                      N/A           N/A           N/A

Jeffrey W. 
Clayton         23,000                    100          $4.00          2007

David T. 
Clements        50,000                    100          $4.00          2007










                                    -41-
<PAGE>


                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

      The following table sets forth certain information with respect to 
option exercises during the fiscal year ended September 30, 1997 by the 
executive officers of the Company and the value of each such officer's 
unexercised options at September 30, 1997:


              Aggregated Options/SAR Exercise in Last Fiscal Year
                     and Fiscal Year - End Options/SAR Values
           ------------------------------------------------------------- 

                               Number of Securities
            Shares                  Underlying         Value of Unexercised
           Acquired    Value       Unexercised            In-the-Money
         on Exercise  Realized   Options/SARs at      Option/SARs at Fiscal
              (#)       ($)     Fiscal Year-End (#)       Year-End ($)
                           ------------------------- -------------------------
Name                       Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------
Donald V. 
Warriner    None       None     0              0          0             0

Richard S. 
Simms       None       None     0              0          0             0

J. Scott 
Fowler      None       None     0              0          0             0

Jeffrey W. 
Clayton     None       None     0           23,000        0             0

David T. 
Clements    None       None     0           50,000        0             0

           




                                    -42-
<PAGE>


                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
         The following table sets forth information as of September 30, 1997,
with respect to the beneficial ownership of the Company's $0.001 par value 
common stock by (a) each person known by the Company to be beneficial owner 
of 5% or more of the Company's outstanding common stock, (b) the directors 
of the Company, and (c) the directors and officers of the Company as a group:
 
                                          Nature of
        Name and Address                  Beneficial           Percent
        of Beneficial Owner               Ownership            of Class
        -------------------               ----------           --------
        Richard S. Simms                   449,178 (1)           28.39
        20 Dutch Creek Drive
        Littleton, CO 80123

        Donald V. Warriner                 375,000               23.70
        4 Glenview Drive
        Littleton, CO 80123

        J. Scott Fowler                    150,000                9.48
        6485 South Parfet Street
        Littleton, CO 80127

        Ray E. Dillon III                  240,049 (2)           15.17
        1 Compound Drive
        Hutchinson, KS 67502

        All Directors and executive      1,214,227               76.74
        officers as a group



                                                          
---------------------------------------
(1)  Includes shares owned by the Simms Family Partnership, controlled by 
     Mr. Simms.
(2)  Includes 76,267 shares owned by other members of the Dillon family.
                                     -43-
<PAGE>


                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------
     No director or executive officer of the Company, nominee for election as
a director, security holder who is known to the Company to own of record or 
beneficially more than 5% of any class of the Company's voting securities, or
any member of the immediate family of any such persons, has had any 
transaction or series of similar transactions, during the Company's last two 
fiscal years, or had any currently proposed transaction, or series of similar
transactions, to which the Company was or is to be a party, in which the 
amount involved exceeds $60,000 or in which any of such persons had or will 
have any direct or indirect material interest, except as follows:

     The Company refinanced certain existing indebtedness to Ray E. Dillon, 
Jr. and Ray E. Dillon, III (father and son), (the "Dillon Note"), in January,
1996.  Ray E. Dillon III is now Chairman of the Board of Directors and
owns and controls 240,049 shares of the Company's Common Stock.  The 
principal amount of the note was $677,000, with interest at 10%, and was 
originally due on or before October 1, 1996.  Additionally, the Company owed 
$192,072 in accrued interest from the prior indebtedness.  The Dillon Note 
and this accrued interest are secured by inventory; trade receivables; the 
right to the name, "Data National Corporation," and related trademarks, 
licensing agreements, patents, and similar rights; bank accounts; and the 
stock of DNI and all of its subsidiary corporations.  However, the Dillon
Note is subordinate to the positions of Norwest Business Credit and Sirrom.

     The Dillons entered into agreements with Richard S. Simms in 1990 and 
1993 whereby, in consideration for him becoming and continuing as President, 
they sold to him certain shares of stock, agreed to pay him 10% of any 
principal paid to them (i.e., the $677,000 referred to above), agreed to 
pay him 50% of interest payments collected by them, and assigned warrants 
to purchase 160,000 shares of Common Stock to him. The warrants were issued 
to the Dillons in 1992 as a result of a previous refinancing of the Dillon 
Note and were transferred to Mr. Simms in 1993.

       Interest expense on the Dillon Note amounted to $63,507 in fiscal 
1997 and $82,574 in fiscal 1996. 


                                  -44-
<PAGE>


                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

     On May 15, 1996, three officers of the Company purchased $93,600 of the 
note payable to related parties from the related parties in exchange for 
notes payable to the related parties from the officers.  The officers
exchanged the notes for 390,000 shares of common stock at a price of $0.24 
per share.
      
        On July 31, 1996, the Chief Financial Officer of the Company 
purchased $32,000 of the note payable to related parties from the related 
parties in exchange for a note payable to the related parties from the 
officer. The Chief Financial Officer exchanged the note to exercise a 
warrant to purchase 160,000 shares of Common Stock of the Company at a price 
of $0.20 per share.

     On January 3, 1997 the Company was desirous of obtaining a line of 
credit from a lending institution.  The Company anticipated that this lender 
would require subordination of the note payable to related parties. As
consideration for entering into this subordination agreement the related 
party required that this indebtedness be refinanced to bear interest at the 
rate of 10% per annum compounded daily.  At the same time the related party
exchanged $150,000 of the debt for 37,500 shares of Common Stock at a price 
of $4.00 per share.

     Ray E. Dillon III and Richard S. Simms have loaned $157,000 to SBS as 
of September 30, 1997 to meet certain operating expenses.  These loans bear
interest at a rate of 10%.  













                                    -45-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

Item 13. Exhibits and Reports on Form 8-K
-----------------------------------------
      (a)       Exhibits

Exhibit
Number    Description                 Location                       
-------   ------------------------    ---------------------------------------

3.1       Articles of Incorporation   Incorporated by reference to the 
                                      Company's Post Effective Amendment No. 
                                      7 to the Company's Registration 
                                      Statement on Form S-18 (SEC File No. 
                                      2-95050-D)
   
3.2       Bylaws                      Incorporated by reference to the 
                                      Company's Post Effective Amendment 
                                      No. 7 to the Company's Registration 
                                      Statement on Form S-18 (SEC File No. 
                                      2-95050-D)

10.1      Revolving Note              Incorporated by reference to Exhibit 
                                      10.1 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.
   
10.2      Credit and Security         Incorporated by reference to Exhibit
          Agreement                   10.2 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.3      Collateral Account          Incorporated by reference to Exhibit 
          Agreement                   10.3 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.4      Agreement as to Lockbox     ServiceIncorporated by reference to 
                                      Exhibit 10.4 to the Company's Quarterly
                                      Report on Form 10-QSB for the quarter 
                                      ended December 31, 1996.
                                    -46-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996

10.5      Landlord's Disclaimer and   Incorporated by reference to Exhibit 
          Consent                     10.5 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.6      Support Agreement -         Incorporated by reference to Exhibit 
          Richard S. Simms            10.6 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.7      Support Agreement-          Incorporated by reference to Exhibit 
          Donald V. Warriner          10.7 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.8      Guaranty by Corporation     Incorporated by reference to Exhibit 
                                      10.8 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.9      Security Agreement for      Incorporated by reference to Exhibit 
          Guaranty                    10.9 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.10     Security Agreement in       Incorporated by reference to Exhibit 
          Favor of Norwest Bank NA    10.10 to the Company's Quarterly Report
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.11     Subordination Agreement     Incorporated by reference to Exhibit 
                                      10.11 to the Company's Quarterly Report
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.

10.12     Assignment                  Incorporated by reference to Exhibit 
                                      10.12 to the Company's Quarterly Report
                                      on Form 10-QSB for the quarter ended 
                                      December 31, 1996.
                                    -47-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996


10.13     Stock Option Plan           Incorporated by reference to Exhibit 
                                      10.5 to the Company's Quarterly Report 
                                      on Form 10-QSB for the quarter ended 
                                      June 30, 1997.

10.14     Penske Autotrac Contract    Filed herewith electronically
          (Pricing information 
          deleted)
   
10.15     Penske Newsletter Contract  Filed herewith electronically 
          (Pricing information 
          deleted)
   
10.16     Penske PTL Mover Contract   Filed herewith electronically
          (Pricing information 
          deleted)

10.17     Penske Target Mail Contract Filed herewith electronically
          (Pricing information 
          deleted)

10.18     Sirrom Investments, Inc.    Filed herewith electronically
          loan documents
    
10.19     Sun Company, Inc. Contract  Filed herewith electronically
          (Pricing information 
          deleted)

10.20     Sun Company, Inc. Contract  Filed herewith electronically
          including Supplement #4 
          (Pricing information deleted)

21.1      Subsidiaries of the         Filed herewith electronically
          registrant

27.1      Financial Data Schedule     Filed herewith electronically
    

                                   -48-
<PAGE>

                  DATA NATIONAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          September 30, 1997 and 1996
    (b)  Reports on Form 8-K
     
No reports on Form 8-K were filed by the Company during the last quarter of 
the period covered by this report.

                             SIGNATURES

     Pursuant to the requirements of Section 13 of the Securities Exchange 
Act of 1934, the Company has duly caused this report to be signed on its 
behalf by the undersigned, thereunto duly authorized.

(Registrant)                             DATA NATIONAL CORPORATION

BY(Signature)                            /s/Richard S. Simms
(Date)                                   January 12, 1998
(Name and Title                          Richard S. Simms, 
                                         Chief Financial Officer,
                                         Treasurer and Director
                                         (Principal Accounting Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, 
this report has been signed below by the following persons on behalf of the 
Registrant and in the capacities and on the dates indicated.

BY(Signature)                            /s/Richard S. Simms
(Date)                                   January 12,1998
(Name and Title)                         Richard S. Simms, 
                                         Chief Financial Officer,
                                         Director and Treasurer

BY(Signature)                            /s/
(Date)                                   January 12,1998 
(Name and Title)                         Ray E. Dillon III, Chairman of the
                                         Board and Director

BY(Signature)                            /s/
(Date)                                   January 12,1998
(Name and Title)                         Donald V. Warriner, President,
                                         Chief Executive Officer and 
                                         Director
                                  -49-