<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, 1996   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, 1996 were 
$2,666,148.

As of September 30, 1996, 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 September 30, 1996, there were 1,498,190 shares of the Registrant's 
$.001 par value common stock outstanding.

                             -1-


      DATA NATIONAL CORPORATION
           CONTENTS
                                                                 Pages
                                                                -------


PART I


Item 1.  Description of Business
--------------------------------
(a)     Business Development.                                       2
    
(b)     Business of Registrant                                     2-5

Item 2.  Description of Property                                    5

Item 3.  Legal Proceedings                                          5

Item 4.  Submission of Matters to a 
         Vote of Security Holders                                   5

PART II
Item 5.  Market for Company's Common 
         Equity and Related Shareholder 
         Matters                                                    6

Item 6.  Management's Discussion and 
         Analysis or Plan of  Operation 
         Management's Discussion and 
         Analysis of Financial Condition 
         and Results of Operations                                  6-8

Item 7.  Financial Statements

         Independent  Auditors' Reports                             9-10

         Consolidated Balance Sheets                                 11

         Consolidated Statements of Income                           12

         Consolidated Statement of Shareholders' Equity              13

         Consolidated Statements of Cash Flows                       14

         Notes to Consolidated Financial Statements                 15-21

(2)     Related Party Transactions                                  16-17

(3)     Property and Equipment                                       17

(4)     Capital Lease Obligations                                   17-18

(5)     Commitments                                                 18-19

(6)     Common Stock                                                 19

(7)     Major Customers                                              19

(8)     Income Taxes                                                19-20

Item 8. Changes in and Disagreements with Accountants 
        on Accounting and  Financial Disclosure                      21

 PART III 
        
Item 9.  Directors, Executive Officers, Promoters 
         and Control Persons; Compliance With Section 
         16(a) of the Exchange Act of the Company                    21

Item 10.  Executive Compensation                                     22

          Option/ SARs Table                                         23

Item 11.  Security Ownership of Certain Beneficial 
          Owners and Management                                      24

Item 12.  Certain Relationships and Related Transactions             24
   
          SIGNATURES                                                 25

          Financial Data Schedule                                    26




<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.  On March 23, 1987, the Company acquired, 
through an exchange of its common stock, 97.8% of the outstanding common stock 
of Data National Inc. (DNI).  DNI is a holding company and owns 100% of the 
shares Service Business Systems, Inc. (SBS) and National COM-LINK Systems, 
Inc. (NCL).  DNI acquired all of the common stock of SBS and NCL in June of 
1986.  The Company acts as a holding company for DNI and its subsidiaries and 
coordinates their activities.

     SBS is the only active entity, although, NCL receives royalties from 
licensing a trademarked name and, in 1996, recognized deferred revenue 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
     -------------------------------
     The Company derives revenues from products and services provided by its 
subsidiary, SBS, which is the 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 88% and 100% of its revenues in 1996 and 1995, 
respectively.  In 1996, SBS began expanding its client base to include auto 
dealerships and customers in the financial services industry.  SBS is 
continuing to expand into other industries and has signed contracts to provide 
services to the entertainment industry.

     By utilizing proprietary software developed for internal use, SBS 
analyzes a client's customer database to develop segmentation profiles of 
their customers. By developing a better understanding of who their customer is 
and what their needs and expectations are, SBS assists its clients in 
attempting to improve 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

     New Customer Programs
     ---------------------
     -     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 on 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 profile.


                              -2-
<PAGE>

     SBS also generates sales by providing artistic and graphic design 
services used in developing these programs and facilitating the printing of 
the marketing materials to be used in the customer specific marketing program.

     SBS expanded its customer base in fiscal 1996 with the addition of 
commonly controlled auto dealerships and a mortgage loan origination company.  
The Company has signed a contract with a company in the entertainment business 
and will provide services to it in fiscal 1997. 

     Employees
     ---------
     SBS employs all of the employees of the Company.  As of September 30, 
1996, SBS had 32 full-time employees working in the office of the Company.  In 
addition, SBS had 15 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.

     Status of Products
     ------------------
     The Autotrac® system requires customer information to be input into 
the database maintained by SBS.  The information is either input by the SBS 
home-based computer operators or downloaded directly from the subscriber's 
computer.   The information is processed by the proprietary software developed 
by SBS, and the database for the customer is updated.  Notices are printed and 
mailed to the customers in the database.  The  Autotrac® system uses a 
Novell network that includes PC equipment.  The system also includes three 
production printers.  In addition, SBS has numerous PC work stations for use 
by the account executives and data entry personnel.  Management of SBS 
believes this equipment, supplemented by additions in fiscal 1997 estimated at 
$190,000 (including an estimated $70,000 of deferred computer software 
development costs), will permit SBS to handle all of its present and 
foreseeable data processing needs through September 30, 1997.  

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

     Patents, Licenses, Franchises, Concessions, Etc.
     ------------------------------------------------
     The Company has no patent protection for its existing products that 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.

     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 $228,243 
and $223,962 for the years ended September 30, 1996 and 1995, respectively.  
The increased sales and resulting net income for the first quarter of the year 
is material to the operations of the Company  There are no other seasonal 
factors to the Company's business.

     Dependence Upon Small Number of Customers
     -----------------------------------------
     The business of SBS is very dependent upon a few major customers; the 
loss of any one or more of these customers could have a material adverse 
effect on the business and operations of the Company.  During the fiscal year 
ended September 30, 1996, major customers represented approximately the 
following percentage of the SBS gross revenues:




          Sun Company, Inc.      -       40.0%
          Mobil Oil Corporation  -       12.4%
          Amoco Oil Company      -       10.8%

     Under the Sun contract, SBS provides the Autotrac system to over 300 
automotive repair locations under the Sun "Ultra Service Center" program.  SBS 
provides other services to Sun, including holiday greeting cards, new 
residence programs, cashier handouts, and customer surveys.  The other 
services are determined at a regional level, as all of the repair locations 
under the corporate contract for Autotrac do not participate in all of the 

                             -3-


programs.  The term of the contract is generally for twelve months, and the 
current contract is scheduled to expire in July of 1997, at which time it will 
be renegotiated.  The contract is signed by Sun on behalf of the dealers, who 
are independent business owners.  Sun invoices the dealers for the SBS fees, 
which are included in their franchise fees.  The payment terms are net 30 
days.

     SBS also provides the Autotrac system to approximately 100 automotive 
repair locations for Mobil under the Mobil "Car Care" program.  SBS provides 
other services to Mobil, including customer surveys and holiday greeting 
cards.  The term of this contract is for three years, with the contract 
expiring on December 31, 1998.  There is a 180 day cancellation provision.  
Mobil bills the dealers for the SBS fees, which are included in their 
franchise fees.  The payment terms are net 30 days.

     SBS provides the Autotrac system to approximately 75 automotive repair 
locations for Amoco under the Amoco "Certicare" program and other programs.  
SBS provides other services to Amoco.  There are approximately six Amoco 
districts that have contracted with SBS for services, and each district has 
its own contract, which is generally on a month to month basis.  In addition 
to the SBS services, Amoco also contracted with NCL for computer software and 
hardware.  This contract terminated, and NCL recognized the revenue from this 
contract, which had been deferred.

     Competition
     -----------
     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 by becoming an 
approved vendor 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 though 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 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 director of 
marketing.

     Research and 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 
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 $169,977 in 1996 as deferred 
computer software development costs.  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.  
Upon completion of the software, these costs will be amortized using the 
straight-line method over a useful life of 3 years.


                             -4-
<PAGE>

     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 $3,805.  This 
amount includes $3,354 as base rent and $451 for tenant finish.


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 earlier death,  resignation 
or removal.  There are no other directors whose term of office as a director 
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
---------------       --------------       -------------       -----------
<TABLE>
<CAPTION>
<S>                   <C>                      <C>            <C>    
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
</TABLE>

(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 
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



                             -5-
<PAGE>

     (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 during the fiscal 
year ended September 30, 1996.

(3)      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.


                            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, 1996, was approximately 320, 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.

Item 6.  Management's Discussion and Analysis or Plan of  Operation 
--------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of 
--------------------------------------------------------------------------
Operations
----------
     September 30, 1996 as Compared to September 30, 1995
     ----------------------------------------------------
     Revenue for the year ended September 30, 1996 was $2,666,148 compared to 
$2,369,096 for the year ended September 30, 1995.  Almost all of the revenue 
for the Company is generated by SBS, with the exception of licensing revenue, 
and sales of hardware and software deferred in prior years, received by NCL in 
the amount of $130,486 for 1996 and $20,000 for 1995. The increase in revenue 
is primarily attributable to increased sales to new SBS customers in new 
markets.  Revenue from automotive dealerships amounted to $103,742 and revenue 
from the mortgage loan business amounted to $113,709 in 1996.  In addition, 
the Company recorded 1996 revenue in NCL in the amount of $120,486 as a result 
of termination of a contract that was entered into in 1987.  The Company 
fulfilled its obligation under the contract and has recognized the revenue 
that had previously been deferred.

     Cost of goods sold as a percentage of revenue amounted to 50% and 53% in 
fiscal 1996 and 1995, respectively.  The cost of goods sold was lower as a 
percentage of revenue in fiscal 1996 due to the recognition of the revenue in 
NCL that had been deferred, and the fact that there were no cost of goods sold 
associated with the deferred revenue.  Excluding this additional revenue, cost 
of goods sold as a percentage of revenue for the Company was 52%.

     Selling and marketing expenses increased to $453,928, or 17% of revenue, 
in fiscal 1996 from $366,290, or 15% of revenue, in fiscal 1995.  The dollar 
increase is primarily due to additional sales and marketing personnel used to 

                            -6-

<PAGE>

penetrate the new markets and existing markets.  There were also expenses of 
producing additional sales and marketing material, including brochures and a 
marketing video.

     General and administrative expenses increased to $761,255, or 29% of 
revenue, in fiscal 1996 from $575,808, or 25% of revenue, in fiscal 1995.  The 
absolute dollar increase in the amount of $185,477 is primarily due to an 
increase of approximately $100,000 in the information technology department of 
the Company, an increase of approximately $70,000 in executive salaries, 
including $31,200 in a stock bonuses, an increase of approximately $23,000 in 
rent and other operating expenses, and an increase of $20,000 in legal fees 
associated with updating the filings with the Securities and Exchange 
Commission and legal fees associated with the shareholders meeting of the 
Company.  The increase in information technology reflects the commitment to 
upgrade the information systems and improve the products offered by SBS.

     Interest expense increased from $88,793 to $95,546.  The increase was due 
to additional equipment purchased by SBS under financing lease arrangements.  
Interest to related parties amounted to $83,988 in 1996 and $88,698 in 1995.

     The Company did not record any income tax expense due to the utilization 
of net operating loss carryforwards for income tax purposes.

     September 30, 1995 as Compared to September 30, 1994
     ----------------------------------------------------
     For the year ended September 30, 1995, the nature of the Company's 
operations was unchanged and focused on providing marketing services to repair 
facilities and similar entities, nationally.  One major customer accounted for 
40% of net sales in 1995, as compared to 41% in 1994.  The loss of this 
customer would have a material adverse effect, including possible cessation of 
operations.  Another customer accounted for 18% of net sales in 1995, as 
compared to 12% in 1994.  One other group of customers, affiliated with a 
national oil company, has been aggregated and constituted 12% of net sales in 
1995 but did not exceed 10% in 1994.  However, this group of customers is not 
subject to the same contractual relationship as the other two major customers 
discussed above and presumably subjects the Company to less risk of loss of 
the customers.

     Sales were essentially unchanged in 1995 as compared to 1994.  Cost of 
sales increased from 51% of sales in 1994 to 53% in 1995, primarily because 
production salaries increased by approximately $45,000 as new positions were 
created.  The other components of cost of sales (postage and materials) 
remained constant as a percentage of sales (22% in 1995 and 1994 for postage, 
and 7% in 1995 and 1994 for materials).

     Selling and marketing expenses decreased by $55,682, or 13%, in 1995.  
The decrease resulted primarily from the elimination of certain consulting 
fees, approximately $18,000 to an independent party and $12,000 to a member of 
the Board of Directors.  Such services are now provided by Company staff.  
Other changes that resulted in cost reduction included not attending trade 
shows of two major customers, which occur biannually, and termination of 
employment of the Company president in July, which reduced travel and related 
expenses.

     General and administrative expenses increased by $36,694, or 7%, in 
1995.  Executive salaries increased approximately $14,000 because of an 
increase in salary for the former president and the employment of a Chief 
Operating Officer in July 1995.  Administrative salaries also increased by 
approximately $10,500, a result of raises for existing employees and 
employment of additional clerical staff.  There were no other significant 
changes in individual expense accounts.

     Interest expense amounted to $88,793 in 1995 and $95,284 in 1994.  The 
interest expense was substantially payable to related parties, and the 
interest payable to related parties amounted to $88,698 and $91,358 in 1995 
and 1994 respectively.

Liquidity and Capital Resources
-------------------------------
In fiscal 1996, cash and cash equivalents decreased by $86,918.  The Company 
utilized $542 of cash for operating activities in fiscal 1996.  The Company 
used $196,376 of cash for the acquisition of equipment and development of the 
Company's proprietary software for internal use.

The Company refinanced their note with a related party in January of 1996.  
Under the terms of the note, the Company is to pay interest at the rate of 10% 
per annum and the principal and interest is due on October 1, 2001.  The 
principal amount of the note as of January 1, 1996 was $677,000 plus accrued 
interest on prior indebtedness in the amount of $192,072.  In May of 1996 the 
related party sold $93,600 of their note to certain officers of the Company.  
The officers exchanged the notes for common stock.  In July of 1996 the 
related parties sold $32,000 of their note to an officer of the Company who 
exchanged the note for common stock.  As of September 30, 1996, the balance of 
the note is $743,472.  As of September 30, 1996, the note was secured by all 
of the assets of the Company and its subsidiaries.

                             -7-
<PAGE>


SBS borrowed $155,000 as of September 30, 1996 from related parties to finance 
the Company's operations and capital investments.  These borrowings have been 
made on a short term basis until the Company is able to secure a revolving 
loan facility.  SBS also borrowed $254,864 under capital leases to finance the 
acquisition of equipment.

The Company's principal source of liquidity includes cash and cash equivalents 
of $4,441 at September 30, 1996.  As of September 30, 1996 the Company had 
negative working capital of ($15,302).  SBS sells holiday greeting cards in 
the first quarter of the fiscal year ending September 30.  This program 
resulted in seasonal sales of $228,243 and $223,962 for the years ended 
September 30, 1996 and 1995, respectively.  The increased sales, resulting net 
income and increase in cash flow for the first quarter of the year is material 
to the operations and cash flow of the Company.  There are no other seasonal 
factors to the Company's business.

The Company will supplement its cash and cash equivalents by additional equity 
and debt financing to fund anticipated expansion and to finance the Company's 
operations and capital investment needs through fiscal 1997.  On January 3, 
1997, the Company closed on a $500,000 revolving loan facility with Norwest 
Business Credit.  Under the terms of the facility, the Company and SBS pledged 
all of their assets to collateralize the financing.  The line of credit bears 
an interest rate of 5% over Norwest's prime lending rate.  Advances under the 
facility may be made on the basis of 80% of the eligible receivables.  As a 
condition of the financing, the related party subordinated their debt to 
Norwest.

As of January 8, 1997, Norwest had not funded the facility.  When the facility 
is funded, which is anticipated to be no later than January 15, 1997, short 
term advances made by related parties to SBS to finance the short term needs 
of SBS will be repaid.  Any remaining funds available after repayment will be 
used for operations.

In December of 1996 the Company commenced sales of restricted stock.  Under 
the terms of the offering, the Company will raise a minimum of $200,000 and a 
maximum of $1,000,000.  As of January 3, 1997 the Company had received $50,000 
in cash and an additional $150,000 from the related party in reduction of the 
$737,472 note payable to the related party.  There can be no assurance that 
additional funds will be raised.  








                              -8-


<PAGE>

Item 7.  Financial Statements
-----------------------------


                   INDEPENDENT AUDITORS' REPORT
                   ----------------------------

Board of Directors
Data National Corporation


We have audited the consolidated balance sheet of Data National Corporation 
and subsidiaries as of September 30, 1996, and the related consolidated 
statements of income, shareholders' equity, and cash flows for the year 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, 1996, and 
the results of their operations and their cash flows for the year then ended, 
in conformity with generally accepted accounting principles.




                                        KPMG Peat Marwick LLP


Denver, Colorado
November 12, 1996













                             -9-


<PAGE>


               INDEPENDENT AUDITORS' REPORT
               ----------------------------

To the Shareholders and Board of Directors
Data National Corporation


I have audited the consolidated balance sheet of Data National Corporation and 
subsidiaries as of September 30, 1995, and the related consolidated statements 
of income, changes in shareholders' equity, and cash flows for the year then 
ended.  These consolidated financial statements are the responsibility of the 
Company's management. My responsibility is to express an opinion on these 
consolidated financial statements based on my audit.

I conducted my audit in accordance with generally accepted auditing 
standards.  Those standards require that I 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.  I believe that my audit provides a reasonable basis 
for my opinion.

In my 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, 1995, and the 
consolidated results of their operations and their consolidated cash flows for 
the year then ended, in conformity with generally accepted accounting 
principles.




                                        William G. Lajoie, P.C.



Littleton, Colorado
January 10, 1996












                             -10-



<PAGE>

             DATA NATIONAL CORPORATION AND SUBSIDIARIES

                   Consolidated Balance Sheets

                   September 30, 1996 and 1995



                           Assets
                           ------
                                               1996              1995   
                                            ----------        ----------
<TABLE>
<CAPTION>
<S>                                        <C>               <C>
Current Assets
     Cash and equivalents                   $    4,441        $   91,359
     Receivables
      Trade less allowance for bad 
      debts of $5,077 in 1996 and 
      $5,077 in 1995                           342,592           244,932
          Other                                 15,305             5,989
     Inventory, at cost                         63,354            47,692
     Other current assets                       35,523             4,633
                                              --------           -------
            Total current assets               461,215           394,605

Property and equipment, at cost                724,414           431,141
     Less accumulated depreciation            (373,709)         (319,137)
                                               -------           -------
                                               350,705           112,004
                                               -------           -------
Deferred computer software development 
 costs                                         169,977              -      

Other assets                                    12,871             9,696
                                               -------           -------
                                             $ 994,768         $ 516,305
                                               =======           =======

 Liabilities and Shareholders' Deficit
 -------------------------------------    
Current Liabilities
     Short-term borrowings - 
     related parties                         $ 155,000         $    -      
     Current portion - 
     capital lease obligations                  75,401             6,932
     Accounts payable                          138,426            61,778
     Accrued expenses                           81,271            20,070
     Deferred revenue                           26,419           132,478
                                               -------           -------
            Total current liabilities          476,517           221,258
                                               -------           -------
Commitments
Note payable to related parties                743,472           869,072
Capital lease obligations, 
 net of current portion                        155,958               753
Shareholders' Deficit
     Common stock $.001 par value, 
     authorized 100,000,000
     shares; 1,498,190 and 818,190 
     shares issued and outstanding
     at September 30, 1996 and 1995, 
     respectively                                1,498              818
     Additional paid-in capital                188,050           31,929
     Accumulated deficit                      (570,727)        (607,525)
                                               -------          -------
                                              (381,179)        (574,778)
                                               -------          -------
                                             $ 994,768        $ 516,305
                                               =======          =======
</TABLE>                                                                      

See accompanying notes to consolidated financial statements.


                           -11-



<PAGE>

           DATA NATIONAL CORPORATION AND SUBSIDIARIES

               Consolidated Statements of Income

            Years Ended September 30, 1996 and 1995




                              1996              1995     
                           ----------        ----------
<TABLE>
<CAPTION>
<S>                       <C>               <C>
Net sales                  $2,666,148        $2,369,096
Cost of sales               1,334,042         1,256,193
                            ---------         ---------
     Gross profit           1,332,106         1,112,903

Selling and marketing 
 expense                      453,928           366,290
General and administ-
 rative expense               761,225           575,808

     Operating income         116,953           170,805

Other income (expense)
     Interest and other 
      income                   16,714             5,824
   Interest expense, 
    including amounts 
    to related parties 
    of $83,988 in 1996 
    and $88,698 in 1995       (95,546)          (88,793)
     Other expense             (1,323)             (349)
                               ------            ------
                              (80,155)          (83,318)
                               ------            ------           
Net income                  $  36,798         $  87,487
                               ======            ======

Net income per share        $    0.04         $    0.11
                               ======            ======

Weighted average shares 
 outstanding                1,040,922           818,190
                            =========           =======

</TABLE>
















                


                                                                            

See accompanying notes to consolidated financial statements.



                            -12-



<PAGE>


            DATA NATIONAL CORPORATION AND SUBSIDIARIES

          Consolidated Statement of Shareholders' Equity

            Years Ended September 30, 1996 and 1995






                                                  Additional
                                Common Stock       Paid-in     Accumulated
                             Shares     Amount     Capital       Deficit  
                            --------   --------  -----------   ------------
<TABLE>
<CAPTION>
<S>                       <C>        <C>         <C>           <C>        
Balance, October 1, 1994    818,190    $  818     $ 31,929      $(695,012)

     Net income                -         -            -            87,487
                            -------     -----       ------        ------- 
Balance, September 30, 
 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 repur-
     chased and retired      (7,500)       (8)      (1,792)          -      

     Net income                -          -           -            36,798
                             -------    ------       ------        ------
Balance, September 30, 
 1996                     1,498,190    $1,498     $188,050      $(570,727)
                          =========    ======     ========       =========
</TABLE>














                                                                            

See accompanying notes to consolidated financial statements.

                          -13-
<PAGE>

 
            DATA NATIONAL CORPORATION AND SUBSIDIARIES

              Consolidated Statements of Cash Flows

             Years Ended September 30, 1996 and 1995


                                                1996           1995   
Cash flow from operating activities            ------         -------
<TABLE>
<CAPTION>
<S>                                        <C>              <C>
     Net income                             $  36,798        $ 87,487
     Adjustments to reconcile net income 
     to cash flow from operating 
     activities
          Depreciation                         54,572          32,280
          Common stock issued for services     33,000            -      
 Changes in assets and liabilities
 (Increase) decrease in trade receivables     (97,660)            289
 (Increase) decrease in other receivables      (9,316)          9,145
 (Increase) decrease in inventory             (15,662)         (6,124)
 (Increase) decrease in other current 
  assets                                      (30,890)          3,210
 (Increase) decrease in other assets           (3,175)         (6,808)
  Increase (decrease) in accounts payable      76,649          (2,697)
  Increase (decrease) in accrued expenses      61,201         (40,896)
  Increase (decrease) in deferred revenue    (106,059)          4,501
                                              -------          ------
                    Total adjustments         (37,340)         (7,100)
                                              -------          ------
 Cash flow provided by (used in) operating 
  activities                                     (542)         80,387
                                              -------          ------
 Cash flow from investing activities
     Purchases of property and equipment      (26,399)        (63,035)
Deferred computer software development costs (169,977)           -      
                                              -------          ------
 Cash flow used in investing activities      (196,376)        (63,035)
                                              -------          ------
 Cash flow from financing activities
Short-term borrowings from related parties    340,000             864 
     Repayment of short-term borrowings 
     from related parties                    (185,000)           -      
 Repayment of capital lease obligations       (43,200)        (11,102)
     Common stock repurchased and retired      (1,800)           -      
                                              -------          ------
 Cash flow provided by (used in) financing 
    activities                                110,000         (10,238)
                                              -------          ------
 Increase (decrease) in cash and 
    equivalents                               (86,918)          7,114
                                        
 Cash and equivalents, beginning of year       91,359          84,245
                                              -------          ------
 Cash and equivalents, end of year          $   4,441       $  91,359
                                              =======          ======

Supplemental cash flow information
 Property and equipment acquired 
   under capital leases                     $ 254,864       $    -      
                                              =======        ========
 Common stock issued for reduction 
   of note payable to related parties       $ 125,601       $    -      
                                              =======        ========
     Income taxes paid                      $    -          $    -      
                                              =======        ========
     Interest paid                          $  87,612       $  87,929
                                              =======        ========
</TABLE>
                                                                            


See accompanying notes to consolidated financial statements.

                             -14-




<PAGE>

            DATA NATIONAL CORPORATION AND SUBSIDIARIES

            Notes to Consolidated Financial Statements

                  September 30, 1996 and 1995



(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. On March 23, 1987, the Company acquired, 
through an exchange of its common stock, 97.8% of the outstanding common stock 
of Data National Inc. (DNI).  DNI is a holding company and owns 100% of the 
shares Service Business Systems, Inc. (SBS) and National COM-LINK Systems, 
Inc. (NCL).  DNI acquired all of the common stock of SBS and NCL in June of 
1986.  The Company acts as a holding company for DNI and its subsidiaries and 
coordinates their activities.

NCL receives royalties from licensing a trademarked name and, in 1996, 
recognized deferred revenue as a result of the termination of a contract for 
the sale of hardware and software products.

The Company derives revenues 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 88% and 
100% of the Company's net sales in 1996 and 1995, respectively.  In 1996, SBS 
began expanding its client base to include auto dealerships and customers in 
the financial services industry.

     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
     ----------------
     Preparation of financial statements in accordance with generally accepted 
accounting principles requires the use of estimates.

     Cash Equivalents
     ----------------
     The Company considers investments with an original maturity of three 
months or less to be cash equivalents.

     Inventory
     ---------
     Inventory consists of card stock and is carried at cost 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.


      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 $169,977 in 1996 as 
deferred computer software development costs.  The costs deferred include the 
costs of outside consultants and salary and benefit costs of programmers hired 

                           -15-

<PAGE>
upon completion of the design phase, to complete the programming of this 
software.  Upon completion of the software, these costs will be amortized 
using the straight-line method over a useful life of 3 years.

     Deferred Revenue
     ----------------
     Prepayments for products are recorded as deferred revenue until the 
product is 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 $10,415 and $6,001 in 1996 and 1995, respectively.

     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.

     Net Earnings Per Share of Common Stock
     --------------------------------------
     Net earnings per share has been computed based on the weighted average 
number of common shares outstanding during the year.  


(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 when the Company enters 
into a line of credit agreement with a bank.

     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 206,299 shares of the Company's common stock.  
The principal amount of the note is $743,472, including accrued interest on 
prior indebtedness of $192,072, with interest at 10%, due on or before October 
1, 2001.  The note is 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.  Interest expense on the related party 
note amounted to $81,980 and $87,443 in 1996 and 1995, respectively.

                             -16-


<PAGE>

  Purchase of Note Payable to Related Parties and Conversion of Note to Stock
  ---------------------------------------------------------------------------
     On May 15, 1996, three officers of the Company purchased $93,600 of the 
indebtedness from the shareholders in exchange for notes from the officers.  
The officers exchanged the debt to purchase 390,000 shares of common stock at 
a purchase price of $0.24 per share.

     On July 31, 1996, the Chief Financial Officer of the Company purchased 
$32,000 of the indebtedness from the shareholders in exchange for a note. The 
Chief Financial Officer exchanged the debt to exercise a warrant to purchase 
160,000 shares of common stock of the Company at a purchase price of $0.20 per 
share.

     Compensation to Related Party
     -----------------------------
     A member of the Board of Directors received $3,000 per month for 8 months 
in 1995 for consulting services.  Additionally, a company that he controls was 
indebted to the Company in the amount of $2,924 at September 30, 1995.  At 
September 30, 1995, the Company was indebted to this individual for $3,000.

     Lease Payments to Related Party
     -------------------------------
     The son of the Chief Financial Officer leased equipment to the Company 
under three capital leases, which are summarized in Note 4.  All of these 
leases were paid in full as of September 30, 1996.


(3)     Property and Equipment
       -----------------------
     A summary of property and equipment at September 30, 1996 and 1995 
follows:


                                                 1996            1995   
                                              ----------      ----------
<TABLE>
<CAPTION>
         <S>                                  <C>             <C>
          Furniture and fixtures               $ 35,593        $ 13,584
          Office equipment                      121,120          66,535
          Production equipment                  557,643         340,964
          Vehicles                               10,058          10,058
                                                -------         -------
                                               $724,414        $431,141
                                                =======         =======
</TABLE>
(4)     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, 1996:
<TABLE>
<CAPTION>
    <S>                           <C>
     1997                          $100,752
     1998                           100,752
     1999                            64,583
     2000                             8,335
     2001                             2,259
                                   --------
     Total minimum commitments      276,681
     Less portion representing 
     interest                       (45,322)
                                    -------
     Present value of net 
     minimum commitments            231,359

     Less current portion           (75,401)

     Non-current portion           $155,958
</TABLE>

                           -17-

<PAGE>     



Assets held under capital leases at September 30, 1996 and 1995 are 
summarized as follows:

                                         1996               1995   
                                       --------           --------
<TABLE>
<CAPTION>
<S>                                   <C>                <C>
       Assets at cost                  $254,864           $ 20,758
       Less accumulated depreciation    (21,809)            (4,448)
                                        -------             ------
                                       $233,055           $ 16,310
                                       ========           ========
A summary of capital leases follows:
                                         1996               1995   
                                        ------             ------

</TABLE>
<TABLE>
<CAPTION>
      <S>                             <C>                  <C>
       Monthly payment of $692 to 
       related party, interest at 
       14%, due in September 1996      $   -                $7,685
       Monthly payment of $8,396, 
       interest ranging from 4.9% 
       to 19.9%, due from October 
       1998 through February 2001       231,359               -      
       Less current portion             (75,401)            (6,932)
                                        -------              -----
                                       $155,958            $   753
                                       ========            =======
</TABLE>
 Amortization of capital leases is included in depreciation expense.

     Interest expense attributable to capital leases of the Company is 
included in interest expense in the accompanying consolidated financial 
statements and amounted to $12,151 and $1,350 in 1996 and 1995, respectively.


(5)     Commitments
       ------------
     Office Lease
     ------------
     The Company occupies office space under a lease that expires in February 
1999 and requires monthly payments of $3,805.  Following is a summary of 
future rental commitments under this lease:
<TABLE>
<CAPTION>
<S>     <C>
1997     $45,662
1998     $45,662
1999     $19,026
</TABLE>
 Rent expense amounted to $37,836 in 1996 and $33,600 in 1995.

     Incentive Plans
     ---------------
     In July 1994, the Company adopted an Employee Incentive Plan, which 
provided for a contribution to the plan of 5% of quarterly sales in excess of 
$480,000.  For 1995, this contribution amounted to $1,424 and has been accrued 
in the accompanying consolidated balance sheets.  This plan was terminated as 
of December 31, 1995.

     Also in July 1994, the Company adopted an Executive Compensation 
Incentive Plan, which provides for a contribution to the plan of 20% of 
quarterly net income in excess of $75,000.  Through September 30, 1995, there 
were no contributions due.  In September of 1995, the Board of Directors 
replaced the 1994 plan with a new executive compensation plan for the year 
ending September 30, 1996.  The plan provided for a bonus of 40% of the net 
income of the Company in excess of $125,000.  Through September 30, 1996, no 
contributions have been made to the plan, and the plan has been terminated.

     During fiscal 1996, the Board of Directors adopted the 1996 Incentive 
Plan, which is made available to all of the Company's full time employees as 
an incentive to achieve greater 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 for the calendar year 

                          -18-

<PAGE>

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.  Nothing has been contributed to the 1996 Profit 
Sharing Plan, and no amount has been distributed to employees as the Company 
was not profitable for the nine months ended September 30, 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 deferral.  In 
1996 and 1995, such matching contributions amounted to $1,435 and $1,433, 
respectively.


(6)     Common Stock
     ---------------
On May 15, 1996, the Company entered into agreements with three officers of 
the Company to sell 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 each August 1 during each of the 
three consecutive calendar years 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, 
officer's death, permanent total disability or retirement or, the Board 
decides 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.


(7)     Major Customers
      -----------------
     The following customers each accounted for more than 10% of sales in 1996 
and 1995:
     
                     % of Sales           
                   -------------
Customer          1996       1995
--------         ------     ------
<TABLE>
<CAPTION>
<S>              <C>        <C>
A                 40.0       40.1
B                 12.4       18.1
C                 10.8       12.2
</TABLE>
(8)     Income Taxes
       -------------
     The approximate tax effect of each type of temporary difference and 
carryforward that gives rise to a significant portion of deferred tax 
liabilities and deferred tax assets at September 30, 1996, computed in 
accordance with SFAS No. 109, is as follows:
<TABLE>
<CAPTION>
    <S>                                            <C>
     Deferred Tax Assets
          Net operating loss carryforward            $ 494,000
          Allowance for doubtful accounts                2,000
          Accrued interest - note payable 
          to related party                              65,000     
                                                       -------
     Total Gross Deferred Tax Assets                   561,000
          Less valuation allowance                    (561,000)
                                                       -------
     Net Deferred Tax Assets                         $    -      
                                                      ========
</TABLE>
                             -19-
<PAGE>

     At September 30, 1996 the Company has net operating loss carryforwards 
which expire as follows:
<TABLE>
<CAPTION>
                          Expiration                Amount
                          ----------            -------------
                            <S>                <C>
                             1999               $       6,000
                             2000                     208,000
                             2001                      87,000     
                             2002                      11,000
                             2003                     501,000
                             2004                     432,000
                             2005                     207,000
                                                    ---------
                                                   $1,452,000
                                                    =========
</TABLE>
     This amount may be further limited by separate return year limitations 
for the years 1984 to 1987,      which aggregate $437,000 and would reduce the 
carry forwards with expirations from 1999 to      2002.

     Income tax expense is different from amounts computed by applying the 
statutory Federal income tax rate for the following reasons:

                                                1996           1995   
                                              -------        -------
<TABLE>
<CAPTION>
<S>                                          <C>            <C>
 Tax expense at 34% of net earnings           $13,000        $30,000
 Change in valuation allowance for net
 deferred tax assets                          (15,000)       (32,000)
          Other                                 2,000          2,000
                                               ------         ------
          Income tax expense                  $  -           $  -     
                                               ======         ======
</TABLE>
                               -20-

<PAGE>



 Item 8. Changes in and Disagreements with Accountants on Accounting and 
 -----------------------------------------------------------------------  
         Financial Disclosure
         --------------------
     In June of 1994 the Company reported a change in its independent 
accountant.  The firm of Miller and McCollom had performed the last audit of 
the Company's consolidated financial statements as of September 30, 1989, and 
for the year then ended.  There were no reportable disagreements with that 
firm, and its report for 1989 was qualified regarding the Company's ability to 
continue as a going concern.

     The Company engaged the firm of William G. Lajoie, P.C., to audit its 
consolidated financial statements for the years ending 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 year ended September 30, 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 of the Company
         ----------------------------------------------------------------
     The Directors and Officers of the Company at September 30, 1996, are as 
follows:

     Name              Age                  Position
-----------------     -----    ----------------------------------------------  
Ray E. Dillon III      43      Director and Chairman of the Board
Richard S. Simms       46      Chief Financial Officer, Director, Treasurer
Donald V. Warriner     46      Chief Executive Officer, President and Director
J. Scott Fowler        32      Chief Operating Officer and Secretary

     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 four 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.

     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 

                            -21-
<PAGE>




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.

     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 1988 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.

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, 1996 and 1995:

                                  Summary Compensation

                                     Annual Compensation 1     

                                                               Other Annual
Name and Principle Position      Year    Salary     Bonus      Compensation 
                                          ($)        ($)           ($)
---------------------------      ----    ------     -----     -------------
<TABLE>
<CAPTION>
<S>                             <C>     <C>       <C>
William Eyerdom, CEO             1995    75,000

Donald V. Warriner, CEO          1996    67,900    22,500

Donald V. Warriner, CEO          1995     3,000

Richard S. Simms,  CFO           1996    48,000

Richard S. Simms,  CFO           1995    58,000

J. Scott Fowler, COO             1996    49,900     7,800

J. Scott Fowler, COO             1995    10,000
----------------------------------------------------------------
</TABLE>
                         Summary Compensation
                             (cont.)
                                         Long-Term Compensation
                                                                     All
                                   Restricted    Options/  LTIP     Other
                                  Stock Awarded  SARs (#) Payouts Compensation
                           Year      ($)           ($)      ($)      ($)
                           ----  -------------  --------- ------- ------------
Name and Principle Position
<TABLE>
<CAPTION>
<S>                       <C>
William Eyerdom, CEO       1995

Donald V. Warriner, CEO    1996

Donald V. Warriner, CEO    1995

Richard S. Simms,  CFO     1996

Richard S. Simms,  CFO     1995

J. Scott Fowler, COO       1996

J. Scott Fowler, COO       1995
</TABLE>
--------------------------------------------------------------------

(1)     There were no executive officers whose compensation exceeded $100,000 
in either 1995 or 1996.
(2)     As described earlier, Mr. Eyerdom was offered certain restricted stock 
as reimbursement for moving expenses incurred in 1993.  However, such stock 
was refused and the payment of the expenses was the subject of litigation 
filed in December of 1995 and settled in February of 1996.


                             -22-

<PAGE>

     The following table shows certain information with respect to stock 
options granted to the Company's executive officers during the fiscal year 
ended 1996:

                 Option/SAR Grants in Last Fiscal Year
                        Individual Grants
------------------------------------------------------------------------------
                                            % of Total
                                           Options/SARs
                    Numbers of Securities  Granted to   Exercise or 
                    Underlying Options /  employees in  base price  Expiration 
                    SARs Granted (#)       Fiscal year    ($/Sh)       Date
------------------------------------------------------------------------------  
<TABLE>
<CAPTION>
<S>                     <C>                 <C>           <C>          <C>

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
</TABLE>

      The following table sets forth certain information with respect to 
option exercises during the fiscal year ended September 30, 1996 by the 
executive officers of the Company and the value of each such officer's
unexercised options at September 30, 1996:

      Aggregated Option/SAR Exercises in Last Fiscal Year 
            and Fiscal Year - End Option/SAR Values
------------------------------------------------------------------------------
                                                      Number of
                                                      Securities
                        Shares                        Underlying
                       Acquired     Value             Unexercised
                      on Exercise  Realized         Options/SARs at
                         (#)         ($)            fiscal year-end
                                              Exercisable      Unexercisable
Name                                          -------------   --------------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                    <C>         <C>            <C>              <C>
Donald V. Warriner      None        None           0                0

Richard S. Simms        None        None           0                0

J. Scott Fowler         None        None           0                0
</TABLE>


                                   Value of Unexercised
                                       in-the-Money
                                   Option/SARs at Fiscal
                                       Year-End ($)       
                                Exercisable    Unexercisable
Name                            -----------    -------------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                               <C>                <C>
Donald V. Warriner                 $ 0                0

Richard S. Simms                     0                0

J. Scott Fowler                      0                0
</TABLE>



                              Numbers of         Performance or
                             Shares, Units        Other Period
                               or Other          Util Maturation
Name                          Rights (#)          or Payout
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                             <C>                    <C>
Donald V. Warriner               0                      0

Richard S. Simms                 0                      0

J. Scott Fowler                  0                      0
</TABLE>


                                  Estimated Future Payout under
                                   Non-Stock Price-Based Plans
                            Threshold      Target        Maximum
                            ($ or #)      ($ or #)       ($ or #)
Name                        ---------     ---------      --------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                           <C>           <C>            <C>
Donald V. Warriner             N/A           N/A            N/A

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

J. Scott Fowler                N/A           N/A            N/A
</TABLE>

                              -23-
<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
         The following table sets forth information as of September 30, 1996, 
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 
theCompany, 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
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                          <C>                          <C>
Richard S. Simms
20 Dutch Creek Drive
Littleton, CO 80123             445,428 (1)                29.73

Donald V. Warriner
4 Glenview Drive
Littleton, CO  80123            375,000                    25.03

J. Scott Fowler
6485 South Parfet Street
Littleton, CO  80127            130,000                     8.68

Ray E. Dillon III
1 Compound Drive
Hutchinson, KS 67502            206,299 (2)                13.77


All directors and executive
officers as a group           1,156,727                    77.21
</TABLE>
                                                          

 (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.
     

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), considered collectively in the 
note (the "Dillon note"), in January, 1996.  Ray E. Dillon III is now 
Chairman of the Board of Directors and owns and controls 206,299 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 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.  

     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 


                               -24-
<PAGE>



the Dillons in 1992 as a result of a previous refinancing of the Dillon note
and were transferred to Mr. Simms in 1993.

     On May 15, 1996, the Dillons assigned $93,600 of their note to Donald V. 
Warriner, President and CEO, J. Scott Fowler, Vice-President and COO, and 
Robert Banner, Vice President of Marketing in exchange for notes payable to 
the Dillons.  The officers exchanged the $93,600 of indebtedness to purchase 
390,000 shares of common stock at a purchase price of $0.24 per share.

     On July 31, 1996, the Dillons assigned $32,000 of their note to Richard 
S. Simms, Chief Financial Officer in exchange for a note payable to the 
Dillons.  The officer exchanged the $32,000 of indebtedness to exercise a 
warrant to purchase 160,000 shares of common stock at a purchase price of 
$0.20 per share. 


     Interest expense on the Dillon note amounted to $81,980 in 1996 and 
  $87,443 in 1995. 

     Ray E. Dillon III and Richard S. Simms have loaned $155,000 to SBS as of 
September 30, 1996 to meet certain operating expenses until a line of credit 
is secured from a bank.  The loan bears interest at a rate of 10% plus 
transaction costs.  On January 3, 1997 the Company closed on 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.  The line of credit bears an interest rate of 5% 
over Norwest's prime lending rate.  Advances under the facility may be made on
the basis of 80% of the eligible receivables.  As a condition of the 
financing, the related party subordinated their debt to Norwest.  As of 
January 6, 1997 Norwest had not funded this facility.  When the facility is 
funded, which is anticipated to be no later than January 15, 1997, these 
short-term advances will be repaid.


                                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.

                                      DATA NATIONAL CORPORATION
                                            Registrant 

                                     /s/ Richard S. Simms   
   Date:  January 8, 1997         By:_______________________________________
                                    Richard S. Simms, Chief Financial Officer,
                                    Treasurer and Director


     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.


                                      /s/ Richard S. Simms
   Date: January 8, 1997          By:_______________________________________
                                    Richard S. Simms, Chief Financial Officer,
                                    Director and Treasurer


                                      /s/ Ray E. Dillon III
   Date: January 8, 1997          By:____________________________________
                                     Ray E. Dillon III, Chairman of the
                                     Board and Director


                                      /s/ Donald V. Warriner
   Date:  January 8, 1997         By:____________________________________
                                     Donald V. Warriner, Chief Executive
                                     Officer and Director














                             -25-