As filed with the Securities and Exchange Commission on February
16, 1996
Registration No. 33-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________
Form SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
(Name of small business issuer in its charter)
Delaware 7819 65-0014636
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation) Industrial Identification No.)
Classification Code No.)
16910 Dallas Parkway, Suite 100, Dallas, Texas 75248 AC(214) 248-1922
(Address and telephone number of principal executive offices)
3941 S.W. 47th Avenue, Ft. Lauderdale, Florida 33314
(Address of principal place of business or intended principal
place of business)
Kevin B. Halter, Jr., 16910 Dallas Parkway, Suite 100, Dallas,
Texas 75248 AC(214) 248-1922
(Name, address and telephone number of agent for service)
Copies to:
Morgan F. Johnston, Esq.
16910 Dallas Parkway, Suite 100
Dallas, Texas 75248
(214) 248-1922
________
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this form as to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ X ]
CALCULATION OF REGISTRATION FEE
Title of
each
class of Proposed Proposed
securities Amount maximum maximum Amount of
to be to be offering price aggregate registration
registered registered per share <F1> offering price <F1> fee
- ------------ ---------- -------------- ------------------ ------------
Common Stock 2,671,258 $3.00 $8,013,774 $2,763.37
<FN>
<F1>Estimated pursuant to Rule 457(h) solely for purpose of calculating
registration fee.
</FN>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
1
2,671,258 SHARES
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
Common Stock
(par value $.0002 per share)
All of the 2,671,258 shares of Common Stock offered hereby are being
sold by the Selling Stockholders. See "Selling Stockholder." Digital
Communications Technology Corporation ("DCT" or the "Company") will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders. The Common Stock is traded on the American Stock Exchange
(the "AMEX") under the symbol "DCT." On January 12, 1996, the last reported
sale price of the Common Stock on the AMEX was $1.31 per share.
_____________
See "Risk Factors" on page 3 for certain information that should be considered
in making an investment decision in DCT.
THE SECURITIES TO WHICH EXCHANGE OFFER/PROSPECTUS RELATE HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ________, 1996
2
AVAILABLE INFORMATION
DCT is subject to the informational requirements of the Securities Exchange
Act of 1934 and in accordance therewith file reports and other information
with the Securities and Exchange Commission (the "Commission"). In addition,
DCT has filed with the Commission a Registration Statement (which term shall
encompass any amendments thereto) on Form SB-2 with respect to the securities
offered thereby. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement. The Registration Statement and the exhibits thereto
may be inspected at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Regional Offices of the Commission at 7 World Trade Center, New York,
New York 10048 and Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60611. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. DCT's common stock
is listed on the AMEX and the reports, proxy statements and other information
filed by the Company with the AMEX may be inspected at the public reference
facilities maintained by the AMEX.
DCT has filed with the Commission a Registration Statement on Form SB-2
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus does not contain all of the information set forth in such
Registration Statement. For further information with respect to DCT and the
Common Stock being offered, reference is hereby made to the Registration
Statement and to the exhibits thereto.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE
OFFERED BY THIS PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
3
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered hereby.
Reliance upon Key Employees
The Company's future success depends to a significant degree on the
continued service of its key personnel and on its ability to attract,
motivate and retain highly qualified employees. In particular, the Company
is dependent upon the management services of Jack Brown and Jim Weinberg.
Mr. Brown is the Company's President and has managed the business and
marketing operations of the Company since its inception. Mr. Weinberg is the
Company's Vice-President and has managed the production and internal
operations of the Company since its inception. Both Mr. Brown and Mr.
Weinberg have employment agreements with the Company which expire June 30,
1997. Competition for such employees is intense and the process of locating
key management and technical personnel with the combination of skills and
attributes required to execute the Company's strategy is often lengthy.
Accordingly, the loss of the services of key personnel could have a material
adverse effect upon the Company's results of operations. The Company does
not maintain any key-man insurance policy on either Mr. Brown or Mr. Weinberg.
Competition
The business of the Company is highly competitive. All aspects of its
business, including price, promptness of service, and product quality are
significant competitive factors and the ability of the Company to
successfully compete with respect to each factor is material to its
profitability. The Company competes with a number of other businesses that
have greater financial, technical and human resources such as Allied Video,
Bell and Howell and Technicolor. Such companies may develop products or
services that may be more effective than the Company's products or services
and may be more successful in marketing their products or services than the
Company. The Company depends upon its demonstrated ability to provide quality
service to its customers in order to be competitive in the market place,
although no assurance can be given that the Company will be able to compete
successfully. See "Business."
Rapidly Changing Technology
Technology in video duplicating equipment is advancing at a rapid rate.
The Company is aware that research and develpoment is being conducted both to
develop new systems and methods of video reproduction and to improve existing
ones. The Company's future profitability will depend upon its ability to
adjust to such new developments. There can be no assurance that new
discoveries will not render the Company's equipment uneconomical or obsolete.
4
Possible Volatility of Stock Price
The Common Stock of DCT is currently traded on the AMEX. DCT believes
that such factors as quarterly variations in DCT's financial results,
announcements regarding the operations of DCT and developments affecting DCT
or its markets have caused significant fluctuation in the market price of the
Common Stock and could continue to do so in the future. In addition, the
stock market in general has recently experienced extreme price and volume
fluctuations. These fluctuations have often been unrelated to the operating
performance of DCT. Broad market fluctuations may adversely affect the
market price of the Common Stock. See "Price Range of Common Stock."
Credit Facilities
As of January 1, 1996, DCT extended the maturity date on its line of
credit with its primary lender to March 31, 1996. While DCT expects to
refinance its current bank debt with a new lender or extend the maturity
date, if necessary, with its current lender beyond March 31, 1996, there can
be no assurance that DCT will be able to do so. In the event that DCT cannot
change its banking relationship or extend the current maturity date of March
31, 1996 to a future date, DCT would be in default of its credit agreement.
Concentration of Customers
During the year ended June 30, 1995, two of DCT's largest customers,
Madacy Music Group and Atlantic Recording Corporation, accounted for 16.3%
and 12% respectively, of its sales. As is customary in the industry, DCT
does not have long-term supply contracts with its customers. The loss of any
of these customers could have a material adverse effect on DCT. See
"Business of DCT -- Customers".
Requirements for Continued Listing on the AMEX; Disclosure Relating to
Low-Priced Stocks
Under the rules for continued listing on the AMEX, a company is required
to maintain certain minimum requirements. The AMEX will consider suspending
dealings and delisting the Common Stock if, among other things, (i) the
number of shares of Common Stock outstanding (exclusive of certain affiliates
and concentrated holdings) is less than 200,000, (ii) the number of round lot
stockholders of record is less than 300, or (iii) the aggregate market value
of the Common Stock is less than $1,000,000. Failure of the Company to meet
the maintenance requirements of the AMEX could result in the Common Stock
being delisted from the AMEX. The Common Stock would then be traded on the
OTC Bulletin Board maintained by the National Association of Securities
Dealers, Inc., which is generally considered to be a less efficient market
than the AMEX. The Company has no reason to believe that the Company will be
delisted from the AMEX.
5
In addition, if the Company's securities are delisted, they would be
subject to Rule 15c2-6 promulgated under the Exchange Act that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited
investors (generally those persons with assets in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with their spouse).
For transactions covered by this rule, the broker-dealer must make a special
suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to the purchase.
Consequently, the rule may restrict the ability of broker-dealers to sell the
Company's securities and may affect the ability of purchasers in this
offering to sell their securities in the secondary market. The delisting
from the AMEX may also cause a decline in share price, loss of news coverage
of the Company, and difficulty in obtaining subsequent financing.
The Commission has also recently adopted regulations which define a
"penny stock" to be any equity security that has a market price (as defined
in such regulations) less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any
transaction involving a penny stock, unless exempt, the rules would require
the delivery prior to any transaction in a penny stock, of a disclosure
schedule prepared by the Commission relating to the penny stock market.
Disclosure would also have to be made about commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and its presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account together with information
on the limited market in penny stocks.
Anti-Takeover Provisions
The Company's Certificate of Incorporation contains a provision
authorizing the issue of "blank check" preferred stock. The Company is
subject to the provisions of Section 203 of the Delaware General Corporation
Law. Such provisions could impede any merger, consolidation, takeover or
other business combination involving the Company or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of the Company. See "Description of Capital Stock."
Lack of Cash Dividends
At the present time, the Company intends to use any earnings which may
be generated to finance the growth of the Company's business. Accordingly,
while payment of cash dividends rests within the discretion of the Board of
Directors, the Company does not presently intend to pay cash dividends and
there can be no assurance such dividends will be paid in the future. See
"Dividend Policy."
6
Potential Acquisitions of Business Enterprises
Although no specific acquisitions are currently contemplated, the
Company may achieve growth through acquisitions of existing business
enterprises in the future. The Company does not plan to limit such potential
acquisitions to any particular industry. Accordingly, there can be no
assurance that the Company can integrate such businesses into its operations
or that it can operate such businesses on a profitable basis in the future.
In addition, there can be no assurance that future acquisition opportunities
will become available, that such future acquisitions can be accomplished on
favorable terms, or that such acquisitions will result in profitable
operations in the future. In addition, many of the Company's acquisitions
are structured as stock exchanges. Fluctuations in the Common Stock may have
an adverse effect on the Company's ability to make additional acquisitions.
See " -- Possible Volatility of Stock Price."
Potential Adverse Effect of Fluctuations in Prices and Supplies of Raw
Materials Upon Operations
DCT is dependent upon outside suppliers for all of its raw material
needs and, therefore, is subject to fluctuations in prices of raw materials.
In particular, DCT's results of operations are affected significantly by
increases in the prices of V-O's (the shell casing storing the video tape)
and blank stock tape. DCT buys its raw materials at market-based prices from
numerous independent suppliers. Prices of V-0's and blank tape products can
be adversely affected by, among other things, the price of polystyrene
resins, as polystyrene resins are a major material used in the manufacturing
of V-0's. No assurances can be given that prices will not increase
significantly in the future.
Shares Eligible for Sale as a Result of this Offering
Prior to this offering, the 2,671,258 shares of Common Stock covered
hereby could only be disposed of in accordance with certain exemptions to the
Securities Act, including Rule 144 promulgated thereunder. Rule 144 allows
the resale of unregistered securities subject to certain restrictions and
conditions. Rule 144 provides, among other things, that persons holding
restricted securities for a period of two years may each sell in brokerage
transactions every three months an amount equal to 1% of the Company's
outstanding shares or the weekly reported volume of trading during the four
calendar weeks preceding the filing of a notice of proposed sale, whichever
is greater. Upon the effectiveness of this Registration Statement, all
2,671,258 shares of Common Stock will be freely tradeable. No prediction can
be made as to the effect, if any, that sales of Common Stock or the
availability of such shares for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
7
THE COMPANY
Digital Communications Technology Corporation ("DCT" or the "Company")
is a Delaware corporation doing business as MagneTech Corporation. DCT was
incorporated in the State of Delaware on November 12, 1987. The address of
DCT's principal executive office is 16910 Dallas Parkway, Suite 100, Dallas,
Texas 75248 and its telephone number is (214) 248-1922.
DCT is an integrated video and audio communications company which
offers video and audio tape duplication and satellite communications services.
DCT duplicates a variety of video and audio cassettes, including full-length
movies, training, music, sales, sports and educational programs. DCT offers
its reproduction services to industrial companies, advertising agencies,
direct selling organizations and educational and religious groups and its
customers include Blockbuster Entertainment, Bristol-Myers Squib, Atlantic
Recording Corportion, Madacy Music Group and Warner Music Group. DCT's
satellite communications system is capable of transmitting live or
pre-recorded programming from remote locations to satellites. DCT's satellite
communications customers include local, network and cable television
operators such as ESPN, ABC/Capital Cities, WFAA News - Dallas, ABC News, HBO
and Beligishe Radio.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered by this Prospectus.
DIVIDEND POLICY
The Company currently intends to retain all earnings to finance the
development and expansion of its operations. The Company does not anticipate
paying cash dividends on its shares of Common Stock in the foreseeable future.
The Company's future dividend policy will be determined by its Board of
Directors on the basis of various factors, including but not limited to the
Company's results of operations, financial condition, business opportunities
and capital requirements. The payment of dividends will also be subject to
the requirements of Delaware law, as well as restrictive financial covenants
in the Company's existing and future credit agreements.
8
MARKET FOR DCT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock of DCT was quoted on the Nasdaq Stock Market until
May 23, 1994 under the symbol "TAPE." The following table sets forth the
range of representative high and low closing bid prices for the Common Stock
for the periods indicated. Quotations represent inter-dealer prices, do not
include retail markups, markdowns or commissions and may not represent actual
transactions.
High Low
Fourth Quarter (until May 23, 1994) $6.00 $4.00
The Common Stock of DCT has been listed on the AMEX since May 23, 1994
under the symbol "DCT." The following table sets forth the high and low
sales prices of the Common Stock on the AMEX for the periods indicated.
High Low
Fiscal 1994
Fourth Quarter $4.50 $3.12
(from May 23, 1994)
Fiscal 1995
First Quarter $3.94 $2.19
Second Quarter 3.94 2.19
Third Quarter 2.75 1.75
Fourth Quarter 2.25 1.25
Fiscal 1996
First Quarter $1.87 $1.31
Second Quarter $1.51 $1.00
On January 12, 1996, the closing price of the Common Stock was $1.31 per
share. On January 12, 1996, there were 580 stockholders of record of the
Common Stock.
DCT currently intends to retain all earnings, if any, to finance the
development and expansion of its operations. DCT does not anticipate paying
cash dividends on its shares of Common Stock in the foreseeable future.
DCT's future dividend policy will be determined by its Board of Directors on
the basis of various factors, including but not limited to DCT's results of
operations, financial condition, business opportunities and capital
requirements. The payment of dividends will also be subject to the
requirements of Delaware law, as well as restrictive financial covenants in
DCT's existing and future credit agreements.
9
Management's Discussion and Analysis of Financial Condition and Results of
Operation of DCT
Years Ended June 30, 1995 and 1994
Overview
DCT experienced a decline in operating income from approximately
$1,484,000 to $811,000 for the years ended June 30, 1994 and 1995,
respectively. Increased operating costs, primarily in general and
administrative expenses, combined with increased cost of goods sold caused
the lower operating results. These increased operating costs, along with
increased interest expense and costs associated with the effects of closing
of DCT's Tapes Unlimited, Inc. ("TU") subsidiary contributed to the net loss
for the year ended June 30, 1995.
During June 1995, DCT's management decided to discontinue the operations
of TU. Management believed that the cost of maintaining the TU subsidiary
outweighed the benefits provided to DCT. The effect on net (loss) income of
the operations of TU is segregated on the face of the income statement as
discontinued operations, and totaled approximately ($765,000) and ($81,000),
net of income taxes, for the years ended June 30, 1995 and 1994, respectively.
Liquidity
DCT used approximately $109,000 in cash from operating activities for
the year ended June 30, 1995 as compared to approximately $425,000 in cash
provided by operating activities for the year ended June 30, 1994. The
change in DCT's operating cash position is primarily due to the net loss of
approximately $282,000 incurred during the year ended June 30, 1995 as
compared to the net income generated in the year ended June 30, 1994 of
approximately $699,000. Other significant items that affected cash from
operating activities for the year ended June 30, 1995 were increases in
inventory, accounts receivable and prepaid expenses.
Overall inventory levels increased approximately 26% from June 30, 1994
to June 30, 1995 in order to support the increased sales levels experienced
during the year ended June 30, 1995. The largest increases occurred in the
work-in-process and raw material components of inventory which increased
approximately $400,000 and $315,000, respectively during the year ended June
30, 1995. Toward the end of the fiscal year, DCT began pre-loading blank
tapes in anticipation of peak season demand in the fall. This activity led
to the increased inventory levels noted above.
Despite the increased inventory levels, the higher inventory amounts
were consistent with the sales levels experienced during the year ended June
30, 1995. This is evident from the consistent inventory turnover experienced
during the years ended June 30, 1994 and 1995, which actually improved
slightly during these periods from 4.9 times for the year ended June 30, 1994
to 5.2 times for the year ended June 30, 1995.
10
Inventory levels, particularly in the work-in-process and finished goods
categories, will fluctuate somewhat depending on the size and number of video
tape duplicating orders processed at any given time. Typically DCT does no
t stock significant quantities of finished products, shipping orders
immediately upon completion. Management will continue to focus on ensuring
that the least amount of operating cash is invested in inventory by ensuring
that shipments are made immediately upon project completion and by minimizing
the amount of raw materials purchased.
Accounts receivable increased approximately $891,000 for the year ended
June 30, 1995 as compared to approximately $1,880,000 for the year ended June
30, 1994. Although still contributing to the overall net negative operating
cash flow position, the size of the increase in accounts receivable was
improved in the current year ended June 30, 1995 despite the increase in
sales for the same period.
DCT's accounts receivable collection period (measuring how quickly, on
average, DCT collects its accounts receivable) increased from approximately
67 days at June 30, 1994 to approximately 74 days at June 30, 1995. DCT
continues to receive competitive pressures from its customers to grant longer
payment terms due to the changing customer base (discussed more fully in the
"Results of Operations" section). Therefore, in response to specific
accounts that had deteriorated and overall increased sales, DCT increased its
allowance for doubtful accounts from approximately $320,000 to $1,065,000 as
of June 30, 1994 and 1995, respectively.
Prepaid expenses and other current assets increased approximately
$314,000 for the year ended June 30, 1995 as compared to an increase of
approximately $229,000 for the year ended June 30, 1994. The increase is
primarily related to income tax receivables based on anticipated refunds due
to DCT's net losses in the current year.
Included in the net loss for the year ended June 30, 1995 were several
non-cash losses which partially offset some of the uses of cash from
operating activities noted above. Approximately $531,000 was related to the
write-off of goodwill recorded from the acquisition of DCT's TU subsidiary
which was discontinued in June 1995. In addition, a net loss of
approximately $106,000 was realized on the sale of equipment that was no
longer needed.
Approximately $2,005,000 was used in investing activities for the year
ended June 30, 1995 as compared to approximately $2,588,000 for the year
ended June 30, 1994. A large portion of cash used in investing activities
for the year ended June 30, 1995, other than capital expenditures which is
discussed in the "Capital Resources" section, was an increase in investments
in DCT's marketable securities portfolio and an additional investment of
approximately $350,000 in the stock of DCT's former majority owner, S.O.I.
Industries, Inc. A net use of approximately $99,000 was related to these
marketable securities investment activities during the year ended June 30,
1995. Additionally, cash was temporarily advanced to S.O.I. Industries, Inc.
and an affiliate of DCT which is expected to be repaid.
DCT utilized its line of credit to provide approximately $1,504,000 for
working capital needs during the year ended June 30, 1995. In addition,
approximately $269,000 in cash was generated from issuances of common stock
in connection with bonuses and other employee compensation. Management
intends to selectively utilize its line of credit to fund capital
expenditures and inventory purchases when needed, and expects to reduce the
amount outstanding on the line of credit as collections on sales are received.
11
As of June 30, 1995, DCT failed to meet a cash flow coverage ratio as
required by certain of DCT's loan agreements. Therefore, all amounts due
under these agreements have been classified as current liabilities on the
balance sheet. There can be no assurance that DCT will be able to comply
with this debt covenant in the future, however management will attempt to
comply or renegotiate the covenant with DCT's lender.
During the year ended June 30, 1995, DCT's cash needs were met primarily
through operations, with additional short-term borrowing on DCT's credit line.
Long-term liquidity needs are anticipated to be met through sales growth and
separate financing arrangements. Management anticipates that it will
continue to meet most obligations as they come due, and no vendor/supplier
problems are expected.
Capital Resources
DCT invested approximately $1,227,000 in equipment and leasehold
improvements for the year ended June 30, 1995. This was lower than amounts
invested during the year ended June 30, 1994 due to significant equipment
purchases for DCT's high-speed duplicating facility in Indianapolis, Indiana
in the prior fiscal year. The necessary equipment to initially position DCT
to expand sales to the retail-sell-through market (see "Results of Operations"
below) has now been acquired. However, DCT plans to continue to expand
current operating facilities at the Indianapolis plant to fully meet the high
volume demands of the retail-sell-through market.
Expenditures in the year ended June 30, 1995 consisted primarily of the
following: a satellite uplink unit for DCT's satellite broadcast operations
and machinery and equipment for general overall upgrades and replacements at
all of DCT's facilities. These expenditures were financed through operations.
Results of Operations
Overall growth in DCT's target markets led to continued sales growth in
the current year. Net sales increased approximately 16% from $18,005,000 to
$20,894,000 for the years ended June 30, 1994 and 1995, respectively.
Significant sales increases, experienced primarily in DCT's first and second
fiscal quarters, led to this sales growth as orders were filled to meet the
holiday buying season demands. As in the prior fiscal year, management's
focus on the "retail-sell-through market" resulted in this sales surge. This
market centers on sales of pre-recorded video tapes which are sold at the
retail level. The video tapes sold to this market are typically recorded on
a narrower band width (i.e. extended play mode) in order to record more
programming on less video tape at a lower cost. DCT's customer base has
become increasingly dominated by the companies which distribute these
pre-recorded videos to the retail-sell-through market, and management has
positioned DCT to capitalize on this portion of the video industry.
Operating profit did not keep pace with the increased sales, declining
from approximately $1,484,000 (8.2% of net sales) to $811,000 (3.9% of net
sales) for the years ended June 30, 1994 and 1995, respectively. The decline
in operating profit is due to increases in cost of goods sold and general and
administrative expenses.
12
Cost of goods sold as a percentage of sales increased to 77% for the year
ended June 30, 1995 as compared to 75% for the year ended June 30, 1994. The
increased cost of goods sold is directly attributable to increased material
costs, specifically the cost of the plastic video cassette shells, which have
been increasing in cost faster than DCT's ability to pass the increases to
its customers. Management will continue its efforts to pass on the material
cost increases to DCT's customers and will continue its focus on cost
containment, especially in labor costs, to ensure more efficiency is obtained
and thereby reducing current cost levels even though sales volume increases.
Management is also exploring alternative sources for its raw materials to
reduce material costs.
As a percentage of net sales, general and administrative expenses
increased from approximately 7% to 9% for the year ended June 30, 1994 and
1995, respectively. This increase was due to a larger provision for doubtful
accounts and increased public relations expenses. In addition, increased
legal and professional expenses were incurred in connection with a lawsuit
filed against two former employees which was settled prior to June 30, 1995.
PAGE
Despite the increase in net sales, selling expenses increased only
slightly for the year ended June 30, 1995. As a percentage of net sales,
selling costs approximated 4.9% and 4.3% for the years ended June 30, 1995
and 1994, respectively. The increase was due to an increase in commissions
paid.
Interest expense increased from approximately $352,000 to $700,000 for
the years ended June 30, 1994 and 1995, respectively. This increase was due
primarily to increased borrowings on DCT's line of credit and increased
long-term borrowing over the levels of the prior year. In addition,
increased interest expense was due to an increase in the bank's prime
interest rate which directly affects DCT's borrowing rates. This additional
debt, as compared with the prior year, was incurred in connection with
expansion of operations, primarily at DCT's high-speed duplicating facility
in Indianapolis, Indiana and for funds borrowed for maintenance of DCT's
investment portfolio.
DCT realized income from securities transactions of approximately
$513,000 for the year ended June 30, 1995 as compared to approximately
$259,000 for the year ended June 30, 1994. The gains were from investment
transactions associated with DCT's marketable securities portfolio. DCT
invests funds in quality equity securities through high quality brokers and,
by policy, limits the amount of exposure in any one equity investment. Such
investments are continually monitored to reduce the risk of any adverse stock
market volatility. Cash not invested in securities is placed on account with
high quality brokerage firms, which is swept daily into a federally insured
money market account, or placed on account with a federally insured national
bank.
In the quarter ended December 31, 1993, after evaluating the historical
contribution of DCT's Video Plus, Inc. subsidiary and considering the
expected future contribution of this subsidiary, management decided to sell
Video Plus, Inc. The operations of Video Plus, Inc. have been removed from
the operating section of the consolidated statement of income for the year
ended June 30, 1994, and the income from operations of Video Plus, Inc. have
been segregated under discontinued operations. The net effect of the
operation of Video Plus, Inc. for the year ended June 30, 1994 was a reduction
to net income of approximately $94,000.
13
Other Items
The costs of DCT's products are subject to inflationary pressures and
commodity price fluctuations. Inflationary pressures have been relatively
modest over the past five years and DCT has generally been able to mitigate
the effects of inflation and commodity price fluctuations through sales price
increases and cost savings in other areas.
DCT's sales levels generally follow the retail-sell-through markets,
which typically peak in the fall and early winter months as retail demand and
holiday orders are met. DCT has mitigated this seasonality by increasing
sales efforts to lower volume, but higher margin customers such as corporate
training video duplication and the video rental market. In addition,
management plans to increase market penetration in the Canadian and other
foreign markets where the seasonal base is different from that of the
domestic market. Finally, management intends to focus its marketing efforts
toward the amusement related industry (i.e. providing video tape duplication
services for video game manufacturers) as well as to the mass marketing
advertising industry to help mitigate the seasonality of the retail-sell-
through markets. Even by utilizing these techniques, sales levels are still
lower in the summer months.
14
Quarters ended December 31, 1995 and 1994
DCT continued to experience sales growth for both the quarter and six
month periods ended December 31, 1995. However, DCT continued to experience
a decline in operating profit and net income, both in real terms and as a
percentage of net sales. Increased raw material costs as well as increased
general and administrative costs were primarily responsible for the declining
operating profits. Increased interest expense and lower realized gains from
the marketable securities portfolio, coupled with the lower operating profits,
resulted in the lower net income.
Liquidity
DCT used approximately $570,000 in cash from operating activities for
the six months ended December 31, 1995 as compared to approximately $785,000
in cash used in operating activities for the six months ended December 31,
1994. An overall net use of cash in operating activities for the six month
period ended December 31, 1995 is consistent with prior years. During this
period DCT typically experiences its highest sales volume, but cash collections
on many of the sales follows in the subsequent quarter. This situation is
evident in the period ended December 31, 1995, as accounts receivable
increased approximately $1,219,000 from the June 30, 1995 balance. In
addition, DCT's inventory increased approximately $147,000 during the same
period. The increase was due to significant purchases of raw materials at
the end of the second quarter which were acquired for a lower per unit cost
than had been available in prior months. The raw material purchases,
specifically of video tape cassette shells and video tape "pancakes," were
purchased based on anticipated orders for the next several months, and were
purchased to mitigate the steadily increasing material costs that have been
eroding operating profits.
DCT's accounts receivable collection period (measuring how quickly, on
average, DCT collects its accounts receivable) increased from approximately
74 days at June 30, 1995 to approximately 77 days at December 31, 1995.
While the 77 days is a marked improvement from the 85 days for the first
quarter ended September 30, 1995, it still demonstrates the effect of
competitive pressures from DCT's customers to grant longer payment terms.
As discussed above, inventory levels increased approximately 4% from
June 30, 1995 to December 31, 1995. The finished goods and work in process
components of inventory declined slightly from the June 30, 1995 levels,
while raw materials increased. The raw materials inventory component is
expected to decline as in-stock raw materials are utilized to meet production
requirements in subsequent months. Inventory levels, particularly in the
work-in-process and finished goods categories, will fluctuate somewhat
depending on the size and number of video tape duplicating orders processed
at any given time. Typically, DCT does not stock significant quantities of
finished products, shipping orders immediately upon completion.
15
Approximately $684,000 in cash was provided by investing activities for
the six months ended December 31, 1995 as compared to approximately
$1,368,000 in cash used in investing activities for the corresponding period
of the prior year. The primary sources for the funds were an approximate
$149,000 decrease in loans receivable from affiliated companies and an
approximate $1,014,000 decrease in funds invested in DCT's marketable
securities portfolio. When not invested in marketable securities, the
majority of these funds are invested in federally-insured money market funds,
and are classified as cash equivalents.
DCT utilized its line of credit to provide approximately $360,000 for
working capital needs during the six months ended December 31, 1995 and
repaid approximately $357,000 in long-term debt. Management intends to
selectively utilize its line of credit to fund capital expenditures and
inventory purchases when needed, and expects to reduce the amount outstanding
on the line of credit as collections on sales are received.
As of June 30, 1995, DCT failed to meet a cash flow coverage ratio as
required by certain of DCT's loan agreements. Therefore, all amounts due
under these agreements have been classified as current liabilities on the
balance sheet. There can be no assurance that DCT will be able to comply
with this debt covenant in the future, however management will attempt to
comply or renegotiate the covenant with DCT's lender.
During the year ended June 30, 1995, DCT's cash needs were met primarily
through operations, with additional short-term borrowing on DCT's credit line.
Long-term liquidity needs are anticipated to be met through sales growth and
separate financing arrangements. Management anticipates that it will
continue to meet most obligations as they come due, and no vendor/supplier
problems are expected.
Capital Resources
DCT invested approximately $457,000 in equipment and leasehold
improvements for the six months ended December 31, 1995. This amount was
consistent with capital expenditures during the corresponding period of the
prior year. The expenditures related primarily to a high-speed video
duplicating system which was acquired for DCT's Fort Lauderdale facility
during the first quarter ended September 30, 1995. DCT plans to continue to
expand current operating facilities at the Indianapolis plant to fully meet
the high volume demands of the retail-sell-through market. DCT intends to
finance these expenditures through operations.
Results of Operations
Overall growth in DCT's target markets continued the sales growth
experienced during the first quarter ended September 30, 1995 and during the
year ended June 30, 1995. Net sales increased approximately 2% from
$7,728,000 to $7,896,000 for the three months ended December 31, 1994 and
1995, respectively. Net sales also increased for the six month period ended
December 31, 1995 to approximately $13,282,000 from approximately $12,004,000
for the six month period ended December 31, 1994, an 11% increase.
Significant sales increases were experienced as orders were filled to meet
the holiday buying season demands. As in the prior fiscal year, management's
focus on the "retail-sell-through market" resulted in this sales hike. This
market centers on sales of pre-recorded video tapes which are sold at the
retail level. The video tapes sold to this market are typically recorded on
a narrower band width (i.e. extended play mode) in order to record more
programming on less video tape at a lower cost. DCT's customer base has
become increasingly dominated by the companies which distribute these pre-
recorded videos to the retail sell-through market, and management has
positioned DCT to capitalize on this portion of the video industry.
16
Operating profit did not keep pace with the increased sales, declining
from approximately $689,000 (8.9% of net sales) to $514,000 (6.5% of net
sales) for the three months ended December 31, 1994 and 1995, respectively.
A similar decline was experienced for the six months ended December 31, 1995.
Operating profit for this period declined from approximately $1,096,000 (9.1%
of net sales) to $805,000 (6.1% of net sales). The decline in operating
profits are due to increases in cost of goods sold and general and operating
expenses.
Cost of goods sold, as a percentage of sales, increased to 83% for the
six months ended December 31, 1995 as compared to 82% for the six months
ended December 31, 1994. The increased cost of goods sold is directly
attributable to increased material costs, specifically the cost of the
plastic video cassette shells and video tape, which have been increasing in
cost faster than DCT's ability to pass the increases to its customers.
Management will continue its efforts to pass on the material cost increases
to DCT's customers and will continue its focus on cost containment, especially
in labor costs, to ensure more efficiency is obtained and thereby reducing
current cost levels even though sales volume increases. Management is also
exploring alternative sources for its raw materials to reduce material costs
and was successful in purchasing lower cost materials at the end of the
current quarter.
An overall increase in general and administrative expenses also
contributed to the lower operating profit. As a percentage of net sales,
these costs increased from 5.3% to 6.4% for the six month periods ended
December 31, 1994 and 1995, respectively. Increases in professional fees
over prior year levels and an increase in the allowance for doubtful accounts
primarily contributed to this increase.
Interest expense increased from approximately $300,000 to $380,000 for
the six months ended December 31, 1994 and 1995, respectively and from
approximately $166,000 to $204,000 for the three months ended December 31,
1994 and 1995, respectively. These increases were due primarily to increased
borrowings on DCT's line of credit and increased long-term borrowing over the
levels of the prior year as well as margin interest paid in connection with
DCT's marketable securities portfolio. In addition, increased interest
expense was due to an increase in the bank's prime interest rate, which
directly affects DCT's borrowing rates.
DCT realized income from securities transactions of approximately
$72,000 for the six months ended December 31, 1995 as compared to
approximately $611,000 for the corresponding period of the prior year. The
gains were from investment transactions associated with DCT's marketable
securities portfolio. DCT invests funds in quality equity securities through
high quality brokers and, by policy, limits the amount of exposure in any one
equity investment. Such investments are continually monitored to reduce the
risk of any adverse stock market volatility. Cash not invested in securities
is placed on account with high quality brokerage firms, which is swept daily
into a federally insured money market account, or placed on account with a
federally insured national bank.
The effect on net income (loss) of the operations of TU is segregated on
the face of the income statement as discontinued operations, and totaled
approximately $95,000 and ($86,000), net of income taxes, for the six months
ended December 31, 1995 and 1994, respectively. Although all operations at
TU have ceased, certain collection efforts are still conducted by DCT on
behalf of TU. These efforts, along with debt forgiveness resulting from
settlements with TU creditors, resulted in recoveries which is reflected in
the income from discontinued operations for the six months ended December 31,
1995.
17
BUSINESS OF DCT
General
Digital Communications Technology Corporation (the "Company") is a
Delaware corporation doing business as MagneTech Corporation whose common
stock is traded on the American Stock Exchange (the "AMEX").
DCT was incorporated in the State of Delaware on November 12, 1987. The
address of DCT's principal executive office is 16910 Dallas Parkway, Suite
100, Dallas, Texas 75248 and its telephone number is (214) 248-1922.
Products
DCT is an integrated video and audio communications company which offers
video and audio tape duplication and satellite communications services. DCT
duplicates a variety of video and audio cassettes, including full-length
movies, training, music, sales, sports and educational programs. DCT offers
its reproduction services to industrial companies, advertising agencies,
direct selling organizations and educational and religious groups and its
customers include Blockbuster Entertainment, Bristol-Myers Squib, Atlantic
Recording Corportion, Madacy Music Group and Warner Music Group. DCT's
satellite communications system is capable of transmitting live or pre-
recorded programming from remote locations to satellites. DCT's satellite
communications customers include local, network and cable television
operators such as ESPN, ABC/Capital Cities, WFAA News - Dallas, ABC News, HBO
and Beligishe Radio.
Customers
During the year ended June 30, 1994, one customer, Polygram, accounted
for approximately 21% of DCT's sales. During the year ended June 30, 1995,
two of DCT's largest customers, Madacy Music Group and Atlantic Recording
Corporation, accounted for 16.3% and 12% respectively, of its sales.
Raw Materials and Manufacturing
DCT purchases blank audio and video cassettes for its reproduction
business from several distributors at market prices in the United States and
the Pacific Rim. The cassettes are readily available on the open market.
The majority of DCT's video duplication equipment is manufactured by several
major manufacturers in Japan and purchased from domestic distributors.
The equipment utilized in DCT's satellite broadcasting business includes
two KU band broadcasting trucks, cameras, generators, telephonic equipment
and dual transmitters. DCT purchases its materials and equipment from
several major manufacturers and believes that the loss of any of its
suppliers or manufacturers would not have a material adverse effect on DCT's
business, financial condition and results of operations.
18
Properties
DCT duplicates video and audio tapes at two facilities, one located in
Ft. Lauderdale, Florida and one located in Indianapolis, Indiana. The Ft.
Lauderdale facility, which is made up of two adjacent buildings and covers a
total of approximately 24,000 square feet, is a real-time duplication
facility with the capacity to duplicate an average of approximately 9,000
videos per day. The Indianapolis facility, which covers approximately 66,000
square feet, is a fully automated, state of the art high-speed duplication
facility with the capacity to duplicate 80,000 videos per day.
Competition
DCT's industry is highly competitive. There are other commercial video
duplicating and satellite broadcasting companies which compete with DCT and
have greater financial resources and sales volume than DCT. DCT depends upon
its ability to provide quality services at competitive prices to its
customers in order to be competitive.
Employees
As of December 31, 1995, DCT had a total of approximately 207 employees,
all of whom are full-time employees. None of the employees are represented
by a labor union. DCT believes that it has good relations with its employees.
DESCRIPTION OF PROPERTY
Set forth below is certain information with respect to DCT's principal
properties. DCT believes that all of these properties are adequately insured,
in good condition and suitable for the uses described below.
Approximate Size Owned/ Lease
Location Primary Use (Square Feet) Leased Expiration Date
- -------- ----------- ---------------- ------ ---------------
Ft.Lauderdale, Duplication 12,000 Leased August 1996
Florida Office
Ft.Lauderdale, Warehouse 12,000 Owned <F1>
Florida
Indianapolis, Duplication 66,000 Leased June 1999
Indiana
<FN>
<F1> DCT purchased this facility on March 31, 1992 for a purchase price of
$398,000.
</FN>
19
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Age Position
---- --- --------
Jack D. Brown, Jr. 38 President
Kevin B. Halter 59 Chief Executive Officer and
Chairman of the Board
Jim N. Weinberg 39 Executive Vice President
Douglas L. Miller 30 Vice President, Chief
Financial Officer
Kevin B. Halter, Jr. 34 Vice President, Secretary
and Director
Gary C. Evans 38 Director
James Smith 58 Director
Set forth below is a description of the backgrounds of the executive
officers and directors of DCT.
Jack D. Brown, Jr. has served as President of DCT since its inception in
1987. Mr. Brown also served as a member of the Board from its inception to
December 1995. From 1981 to 1987, he was employed as Creative Director for
Slides and Video Services, Inc., a production and duplication film company.
Kevin B. Halter has served as Chief Executive Officer and Chairman of
the Board of DCT since January 1994 and as President, Chief Executive Officer
and Chairman of the Board of S.O.I. Industries, Inc. ("SOI"), an American
Stock Exchange listed company, since June 28, 1994. Mr. Halter also served
as Vice Chairman of the Board of SOI from January 1994 to June 28, 1994. Mr.
Halter also serves as Chairman of the Board of Directors of American Quality
Manufacturing Corporation, a subsidiary of SOI ("AQM"). In addition, Mr.
Halter has served as Chairman of the Board and Chief Executive Officer of
Halter Capital Corporation ("HCC"), a privately-held investment and
consulting company, since 1987. From 1987 until October 1992, Mr. Halter was
a director and officer of Halter Venture Corporation, a publicly-held company
based in Dallas, Texas. Mr. Halter is the father of Kevin B. Halter, Jr.
Jim N. Weinberg has served as Executive Vice President of DCT since its
incorporation in 1987. Mr. Weinberg also served as a member of the Board
from its inception to December 1995. From 1978 to 1987, he was the owner of
Television Production Services, Inc., a video production company specializing
in national television commercials and sporting events.
Douglas L. Miller has served as the Vice President and Chief Finacial
Officer of the Company since January of 1996. Mr. Miller was the Chief
Financial Officer of Independent National Distributors, Inc., a national
distributor of independent music, from June 1991 to January of 1996. Prior
to his work at Independent National Distributors, Inc., Mr. Miller was a
senior accountant with KPMG Peat Marwick in Dallas, Texas from July 1988 to
May of 1991. Mr. Miller received his degree in Business Administration from
Baylor University in May of 1988 and is a CPA.
20
Kevin B. Halter, Jr. has served as Vice President, Secretary and
director of DCT since January 1994. Mr. Halter has also served as Secretary,
Treasurer and director of SOI and AQM since February 1994. He is also the
President of Securities Transfer Corporation, a registered stock transfer
company, a position he has held since 1987. Mr. Halter is also Vice President
and Secretary of HCC. Mr. Halter also served as a director and officer of
Ceetac Corporation, a publicly-held company, from the Spring of 1991 until
September 1991. Mr. Halter is the son of Kevin B. Halter.
Gary C. Evans currently serves as a director of DCT. Mr. Evans has
served as President and Chief Executive Officer of Magnum Petroleum, Inc., an
American Stock Exchange listed company, since July of 1995. Mr. Evans has
served as Chairman of the Board, President and Chief Executive Officer of
Hunter Resources, Inc. (formerly Intramerican Corporation) since September
1992, prior to it being acquired by Magnum Petroleum, Inc. Mr. Evans also
served as President, Chief Operating Officer and director of Hunter Resources,
Inc. from December 1990 to September 1992. He was President and Chief
Executive Officer of Sunbelt Energy, Inc. (the predecessor to Hunter
Resources, Inc.) and its subsidiaries from 1985 to December 1990. Mr. Evans
is President and Chief Executive Officer of Gruy Petroleum Management Co.,
Magnum Hunter Production, Inc. and Hunter Gas Gathering, Inc., wholly-owned
subsidiaries of Magnum Petroleum, Inc. Mr. Evans was Vice President and
Manager of the Southwestern region of the Energy division of Mercantile Bank
of Canada for four years prior to forming Sunbelt Energy, Inc.
James Smith has served as a director of DCT since March 1995. Mr. Smith
has served as President of Pension Analysis Bureau, Inc., a consulting firm
specializing in the administration of company retirement and profit sharing
plans, since 1993. Mr. Smith also served as Vice President of Pension
Analysis Bureau, Inc. from 1988 to 1992.
All directors of DCT hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified.
Executive officers are elected by DCT's Board of Directors to hold office
until their respective successors are elected and qualified. DCT's Bylaws
provide that directors may be paid their expenses, if any, and may be paid a
fixed sum for attendance of each Board of Directors meeting.
21
Committees of the Board of Directors
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee, each composed of at least two independent directors.
The Audit Committee, composed of Kevin B. Halter, Gary C. Evans and James
Smith, recommends the annual appointment of DCT's auditors, with whom the
Audit Committee will review the scope of audit and non-audit assignments and
related fees, accounting principles used by DCT in financial reporting,
internal auditing procedures and the adequacy of DCT's internal control
procedures. The Compensation Committee, composed of Kevin B. Halter, Gary C.
Evans and James Smith, will administer DCT's 1988 Employee Stock Option Plan
and make recommendations to the Board of Directors regarding compensation for
DCT's executive officers.
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid
by DCT to its President for the fiscal year ended June 30, 1995, 1994 and
1993. None of DCT's other executive officers and directors received cash or
non-cash compensation in excess of $100,000 for the fiscal year ended June
30, 1995.
Long Term Compensation
Awards Payouts
Annual Compensation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other
and Annual Restricted
Principal Compen- Stock Options/ LTIP All Other
Position Year Salary Bonus sation Awards SARs(#) Payouts Compensation
_________________________________________________________________________________________________________
Jack D. Brown, Jr. 1995 $85,000 - - - - - -
President 1994 $64,667 $50,000 $15,217 - - - -
1993 $60,008 $52,940 - - - - -
22
In 1990 and 1993, DCT granted Mr. Brown options to purchase up to 50,000
and 50,000 shares of Common Stock, respectively. The stock options are
presently fully vested. The 1990 stock options were exercised at an exercise
price of $1.50 per share. Based on the last reported sales price of the
Common Stock on September 29, 1995, the aggregate dollar value of the
remaining option is $25,000.
Value of
Number of unexercised
unexercised in-the-money
options/SARS at options/SARS at
fiscal year end (#) fiscal year end (#)
Shares acquired Value exercisable/ exercisable/
Name on exercise realized unexercisable unexercisable
(a) (b) (c) (d) (e)
Jack D. Brown 50,000 $43,750 50,000/ -0- $31,250/ -0-
Outside directors each received compensation for attending Board
meetings during the fiscal year ended June 30, 1995 in the amount of $3000.
Such compensation was payable in common stock of DCT.
Employment Agreements
DCT has an employment agreement with Jack D. Brown, Jr. The agreement
with Mr. Brown is for a term of 3 years commencing July 1, 1994 and provides
for a salary of $85,000 per annum. In addition, Mr. Brown receives the same
benefits as other employees of DCT and reimbursement for expenses incurred on
behalf of DCT. The employment agreement also contains, among other things,
covenants by Mr. Brown that in the event of termination for cause, he will
not associate with a business that competes with DCT for a period of one year
after cessation of employment. The employment agreement also provides for a
bonus arrangement based on the following formula: a bonus not to exceed 3.5%
of the net operating profits before taxes and any income/loss arising from
investments or extraordinary items.
23
1990 Employee Stock Option Plan
On January 25, 1990, DCT's Board of Directors adopted the 1990 Employee
Stock Option Plan (the "Plan").
The administration of the Plan rests with the Compensation Committee
(the "Committee"). Subject to the express provisions of the Plan and the
Board of Directors, the Committee shall have complete authority in its
discretion to determine those employees to whom, and the price at which
options shall be granted, the option periods and the number of shares of
Common Stock to be subject to each option. The Committee shall also have the
authority in its discretion to prescribe the time or times at which the
options may be exercised and limitations upon the exercise of options
(including limitations effective upon the death or termination of employment
of the optionee), and the restrictions, if any, to be imposed upon the
transferability of shares acquired upon exercise of options. In making such
determinations, the Committee may take into account the nature of the
services rendered by respective employees, their present and potential
contributions to the success of DCT or its subsidiaries, and such other
factors as the Committee in its discretion shall deem relevant.
An option may be granted under the Plan only to an employee of DCT or
its subsidiaries. The Plan made available for option 500,000 shares of DCT's
Common Stock.
If an optionee ceases to be employed by DCT or any of its subsidiaries,
his or her options shall terminate immediately; provided, however, that if an
optionee's cessation of employment with DCT and its subsidiaries is due to
his death or retirement with the consent of DCT or any of its subsidiaries,
the optionee may, at any time within twelve months in the event of death, or
three months after such cessation of employment, exercise his options to the
extent that he was entitled to exercise them on the date of cessation of
employment, but in no event shall any option be exercisable more than five
years from the date it was granted.
The term of each option granted under the Plan will be for such period
not exceeding five years as the Committee shall determine. Each option
granted under the Plan will be exercisable on such date or dates and during
such period and for such number of shares as shall be determined pursuant to
the provisions of the option agreement evidencing such option. Subject to
the express provisions of the Plan, the Committee shall have complete
authority, in its discretion, to determine the extent, if any, and the
conditions under which an option may be exercised in the event of the death
of the optionee or in the event the optionee leaves the employ of DCT or has
his employment terminated by DCT. The purchase price for shares of Common
Stock under each option shall be determined by the Committee at the time of
the option's issuance and may be less than the fair market value of such
shares on the date on which the options are granted. The agreements
evidencing the grant of options may contain other terms and conditions,
consistent with the Plan, that the Committee may approve.
24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 15,
1996 with regard to the beneficial ownership of the Common Stock by (i) each
person known to DCT to be the beneficial owner of 5% or more of its
outstanding Common Stock, (ii) by the officers, directors and key employees
of DCT individually and (iii) by the officers and directors as a group.
Number of
Shares
Beneficially
Owned Percent
------------ -------
Halter Capital Corporation 1,622,334 27.2%
16910 Dallas Parkway #100
Dallas, Texas 75248
S.O.I. Industries, Inc. 1,048,924 17.6%
16910 Dallas Parkway #100
Dallas, Texas 75248
Jack D. Brown, Jr. 68,850 1%
Jim N. Weinberg 65,503 1%
All directors and 134,353 2.3%
officers as a group
(6 persons)
25
DESCRIPTION OF CAPITAL STOCK
The Certificate of Incorporation, as amended (the "Certificate of
Incorporation") of DCT authorizes the issuance of 25,000,000 shares of Common
Stock, par value $.0002 per share. Holders of Common Stock are entitled to
one vote for each share on each matter submitted to a vote of stockholders.
All outstanding shares of Common Stock of record are fully paid, validly
issued and nonassessable and the holders of Common Stock have no preemptive
rights to subscribe for or to purchase any additional securities issued by
the Company. The Certificate of Incorporation does not provide for
cumulative voting. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in the
distribution of assets remaining after payment of debts and expenses. There
are no conversion, sinking fund or redemption provisions, or any restrictions
on alienability with respect to the Common Stock.
Preferred Stock
The Company's Certificate of Incorporation authorize 10,000,000 shares
of preferred stock, par value $.00001 per share (the "Preferred Stock"). The
Certificate of Incorporation also provides that Preferred Stock may be issued
in one or more series as may be determined from time to time by the Board of
Directors. All shares of any one series of Preferred Stock will be identical
except as to the date of issue and dates from which dividends on shares of
the series issued on different dates will cumulate, if cumulative. The
Certificate of Incorporation also grants the Board of Directors the power to
authorize the issuance of one or more series of Preferred Stock, and to fix
by resolution or resolutions providing for the issue of each such series the
voting powers, designations, preferences, and relative, participating,
optional, redemption, conversion, exchange or other special rights,
qualifications, limitations or restrictions of such series, and the number of
shares in each series, to the full extent now or hereafter permitted by law.
SELLING STOCKHOLDERS
The following table provides certain information with respect to the
shares of Common Stock held by each Selling Stockholder.
Number of Number of
Shares of Number of Shares of Common
Common Stock Shares of Common Stock Beneficially
Beneficially Owned Stock Registered Owned After the
Name Before the Offering Hereunder Offering
- ---- ------------------- ---------------- ------------------
S.O.I. Industries, Inc. 1,048,924 1,048,924 -0-
Halter Capital Corporation 1,622,334 1,622,334 -0-
25
PLAN OF DISTRIBUTION
Any or all of the shares of Common Stock may be sold from time to time
to purchasers directly by the Selling Stockholders. Alternatively, the
Selling Stockholders may from time to time offer the shares of Common Stock
through underwriters, dealers or agents, who may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders or the purchasers of shares of Common Stock for whom they may
act as agents. The Selling Stockholders and any underwriters, dealers or
agents that participate in the distribution of shares of Common Stock may be
deemed to be underwriters, and any profit on the sale of shares of Common
Stock by them and any discounts, commissions or concessions received by any
such underwriters, dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act. At the time a particular
offering of shares of Common Stock is made, to the extent required, a
Prospectus Supplement will be distributed which will set forth the aggregate
amount and type of Common Stock being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
The Selling Stockholders may be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-2, 10b-6 and 10b-7, which provisions may limit the
timing of purchases and sales of any of the securities by the Selling
Stockholders.
Pursuant to agreements entered into with the Selling Stockholders at the
time the Common Stock was issued, the Company will pay substantially all of
the expenses incident to the registration offering and sale of the Common
Stock to the public other than commissions and discounts of underwriters,
dealers or agents, if any. Such expenses (excluding such commissions and
discounts) are estimated to be $9,763.37.
27
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective January 1994, the Company engaged the accounting firm of
Morrison, Brown, Argiz & Company as its independent auditors. The Company's
former accounting firm, Wainberg, Zipper, Strauss & Co., P.A., was dissolved
and effectively ceased to exist as of January 1994. The Company has had no
disagreements with Wainberg, Zipper, Strauss & Co., P.A. on any matter of
accounting principles or practices, financial statement disclosure or
auditing scope or procedure or any reportable items.
The accounting firm of Morrison, Brown, Argiz & Co., the independent
auditors for the Company, was dismissed effective as of December 6, 1994.
During the fiscal year ended June 30, 1994 and the interim period subsequent
to June 30, 1994, there have been no disagreements with Morrison, Brown,
Argiz & Co. on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure or any reportable events.
Morrison, Brown, Argiz & Co.'s report on the financial statements for the
fiscal year ended June 30, 1994 contained no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
The Company engaged the accounting firm of Coopers & Lybrand L.L.P. as
independent auditors for the Company, effective as of December 6, 1994.
During the fiscal years ended June 30, 1993 and 1994 and the interim period
subsequent to June 30, 1994, there have been no consultations with Coopers &
Lybrand L.L.P. on any matter of accounting principles to a specific
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements.
28
EXPERTS
The financial statements of the Company as of June 30, 1995, and for the
year then ended included herein in this Prospectus and the Registration
Statement have been audited by Coopers & Lybrand L.L.P. and have been
included herein in reliance upon the report of Coopers & Lybrand L.L.P. and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of the Company as of June 30, 1994 and for the
year then ended included herein in this Prospectus and the Registration
Statement have been audited by Morrison, Brown, Argiz & Company, and have
been included herein in reliance upon the report of Morrison, Brown, Argiz &
Company and upon the authority of said firm as experts in accounting and
auditing.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 31, 1993, S.O.I. Industries, Inc., a Delaware corporation
("SOI") was the parent corporation of DCT because it owned approximately 50%
of the common stock of the Company. On January 27, 1994 the Board of
Directors agreed to exchange additional shares of the Company's Common Stock
for common stock of SOI. On February 14, 1994 the exchange of shares was
made based on the average price of the stock of both companies on January 27,
1994. The 580,538 shares of Common Stock of the Company that were exchanged
were worth approximately $4,574,636 and were exchanged for 1,329,836 shares
of SOI common stock worth approximately $4,574,636. The reason for the share
exchange was that SOI wished to sell certain shares of DCT's Common Stock
pursuant to Rule 144 under the Securities Act of 1933, as amended, and still
retain the same percentage of ownership in the Company upon such sale.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in th
e successful defense of any action, suit or proceeding) is asserted by suc
h director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
29
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Financial Statements of Digital Communications Technology
Corporation (Audited)
Report of Coopers & Lybrand, L.L.P. F-1
Report of Morrison, Brown, Argiz & Company F-2
Balance Sheets as of June 30, 1995 and 1994 F-3
Statements of Operations for the Years Ended F-4
June 30, 1995 and 1994
Statements of Shareholders' Equity for Years Ended F-5
June 30, 1995 and 1994
Statements of Cash Flows for the Years Ended F-6
June 30, 1995 and 1994
Notes to Financial Statements F-8
Interim Financial Statements of Digital Communications Technology
Corporation (Unaudited)
Balance Sheet as of December 31, 1995 F-18
Statements of Operations for the Six Months and Three F-19
Months Ended December 31, 1995 and 1994
Statements of Cash Flows for the Six Months Ended F-20
December 31, 1995 and 1994
Notes to Interim Financial Statements F-21
30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Digital Communications Technology Corporation
Fort Lauderdale, Florida:
We have audited the accompanying consolidated balance sheet of Digital
Communications Technology Corporation and Subsidiaries as of June 30, 1995,
and the related consolidated statements of operations, 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 1995 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Digital
Communications Technology Corporation and Subsidiaries as of June 30, 1995,
and the consolidated results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
We also audited the adjustment to net unrealized holding losses and the
adjustment to reduce the investment in S.O.I. Industries, Inc. to book value
described in Note 15 which adjustments were applied to restate the June 30,
1994 financial statements. In our opinion, such adjustments are appropriate
and have been properly applied to the June 30, 1994 financial statements.
/s/ COOPERS & LYBRAND L.L.P.
Miami, Florida
August 25, 1995
F-1
PAGE
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
Digital Communications Technology Corporation
and Subsidiaries
We have audited the consolidated statement of income of Digital Communications
Technology Corporation and Subsidiaries as of June 30, 1994, and the related
consolidated statements of shareholders' equity, and cash flows for the year
ended June 30, 1994. 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 results of operations of Digital
Communications Technology Corporation and Subsidiaries, changes in their
shareholders' equity and their cash flows for the year then ended June 30,
1994, in conformity with generally accepted accounting principles.
As discussed in NOTE 2 to the consolidated financial statements, in 1994 the
Company changed its methods of accounting for income taxes and for certain
investments in debt and equity securities.
MORRISON, BROWN, ARGIZ & COMPANY
Certified Public Accountants
/s/ Morrison, Brown, Argiz & Company
Miami, Florida
August 8, 1994
F-2
PAGE
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1995
ASSETS 1995
Current assets:
Cash and cash equivalents $ 284,837
Marketable securities 2,574,626
Accounts receivable, net of allowance for doubtful accounts of $1,065,300 3,143,689
Inventories 4,058,293
Prepaid expenses and other current assets 345,126
------------
Total current assets 10,406,571
Property, plant and equipment, net 5,239,564
Other assets 31,158
Loans receivable, related parties 601,736
------------
$ 16,279,029
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 3,840,000
Current portion of long-term debt 2,735,418
Accounts payable 2,165,725
Accrued liabilities 418,376
------------
Total current liabilities 9,159,519
------------
Long-term debt, less current portion 644,144
------------
Deferred tax liability 8,392
------------
Commitments (Notes 8 and 12)
Shareholders' Equity:
Common stock, 25,000,000 shares of $.0002 par value per share
authorized; 5,961,188 shares issued, 5,301,809 shares outstanding 1,192
Additional paid-in capital 6,567,062
Retained earnings 1,710,867
Investment in S.O.I. Industries, Inc. (1,198,158)
Net unrealized holding loss on securities (613,989)
------------
Total shareholders' equity 6,466,974
------------
$ 16,279,029
============
The accompanying notes are an integral part of these financial statements
F-3
PAGE
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1995 and 1994
1995 1994
Net sales $20,894,025 $ 18,004,917
----------- ------------
Costs and expenses:
Cost of goods sold (exclusive of depreciation) 16,094,788 13,490,134
Selling expenses 1,040,280 776,955
General and administrative expenses 1,793,171 1,275,855
Depreciation and amortization 1,154,880 977,524
----------- ------------
Total costs and expenses 20,083,119 16,520,468
----------- ------------
Operating income 810,906 1,484,449
Interest expense (700,251) (352,403)
Realized gain on sales of marketable securities 512,971 259,110
Other income 142,208 36,564
----------- ------------
Income from continuing operations before income taxes and
change in accounting principle 765,834 1,427,720
Provision for income taxes 283,167 525,372
----------- ------------
Income from continuing operations before change in accounting
principle 482,667 902,348
Discontinued operations (Note 14):
Loss from discontinued operations, net of related income taxes (321,140) (14,435)
Loss on disposal of discontinued operations, net of related income taxes (443,400) (162,164)
----------- ------------
(Loss) income before cumulative effect of change in accounting
principle (281,873) 725,749
Cumulative effect on prior years of change in method of accounting for
income taxes 0 26,285
----------- ------------
Net (loss) income $ (281,873) $ 699,464
=========== ============
Weighted average shares of common stock outstanding 5,264,773 4,890,820
=========== ============
Net (loss) income per common share:
Income from continuing operations $ 0.09 $ 0.18
(Loss) income from discontinued operations (0.06) 0
Loss on disposal of discontinued operations (0.08) (0.03)
----------- ------------
(Loss) income before cumulative effect of accounting change (0.05) 0.15
Cumulative effect of change in method of accounting for income taxes 0 (0.01)
----------- ------------
Net (loss) income per common share $ (0.05) $ 0.14
=========== ============
The accompanying notes are an integral part of these financial statements
F-4
PAGE
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended June 30, 1995 and 1994
Common Stock Additional Investment Net Unrealized
--------------------------- Paid-In Retained in S.O.I. Holding Loss
Shares Amount Capital Earnings Industries, Inc. on Securities
------ ------ ------- -------- ---------------- -------------
Balance, June 30, 1993 5,042,927 $ 1,010 $ 6,916,360 $ 1,615,905 $ (2,062,500) $ 0
Exchange of shares with
S.O.I. Industries, Inc. 580,538 116 4,574,520 0 (4,574,636) 0
Shares issued 167,092 32 273,166 0 0 0
Net depreciation of securities 0 0 0 0 0 (327,929)
Net income 0 0 0 699,464 0 0
------------ ------------ ----------- ------------ ------------ ------------
Balance, June 30, 1994, as
previously reported 5,790,557 1,158 11,764,046 2,315,369 (6,637,136) (327,929)
Adjustment (Note 15) 0 0 0 0 0 (189,309)
Adjustment to reduce
investment in S.O.I.
Industries, Inc. to book
value (Note 15) 0 0 (5,466,349) 0 5,466,349 0
------------ ------------ ----------- ------------ ------------ ------------
Balance, June 30, 1994,
as restated 5,790,557 1,158 6,297,697 2,315,369 (1,170,787) (517,238)
Purchase of S.O.I. Industries,
Inc. shares 0 0 0 0 (27,371) 0
Excess over book value of
amounts paid for shares of
S.O.I. Industries, Inc. 0 0 0 (322,629) 0 0
Exercise of options 142,705 28 179,377 0 0 0
Shares issued 27,926 6 89,988 0 0 0
Net depreciation of securities 0 0 0 0 0 (96,751)
Net loss 0 0 0 (281,873) 0 0
------------ ------------ ----------- ------------ ------------ ------------
Balance, June 30, 1995 $ 5,961,188 $ 1,192 $ 6,567,062 $ 1,710,867 $ (1,198,158) $ (613,989)
============ ============ =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements
F-5
PAGE
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1995 and 1994
1995 1994
Cash flows from operating activities:
Net (loss) income $ (281,873) $ 699,464
------------ ------------
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Depreciation and amortization (including $74,068 in 1995 and
$35,162 in 1994 from discontinued operations 1,228,948 1,012,686
Gain on sale of marketable securities (512,971) (259,110)
Cumulative effect of change in accounting principle 0 26,285
Loss on sale of property, plant and equipment 106,272 0
Provision for bad debts 745,776 372,645
Reserve for inventory obsolescence 0 127,283
Loss on disposal of subsidiary 530,637 162,164
Deferred tax benefit (87,282) 0
Increase in accounts receivable (890,666) (1,879,511)
Increase in inventories (842,355) (557,952)
Increase in prepaid expenses and other assets (313,772) (229,172)
Increase in other assets (13,798) 0
Increase in accounts payable 404,154 724,836
(Decrease) increase in accrued liabilities (12,904) 157,233
(Decrease) increase in income taxes payable (169,077) 68,152
------------ ------------
Net cash (used for) provided by
operating activities (108,911) 425,003
------------ ------------
Cash flows from investing activities:
Net assets of discontinued subsidiary 0 2,809,995
Change in marketable securities (99,343) (2,317,191)
Acquisition of property, plant and equipment (1,226,568) (2,317,131)
Proceeds from sales of property, plant and equipment 24,000 0
Net advances to affiliates (352,736) (606,900)
Purchase of Parent Company shares (350,000) 0
Acquisition of subsidiary 0 (500,000)
Proceeds from sale of subsidiary 0 342,917
------------ ------------
Net cash used for investing activities (2,004,647) (2,588,310)
------------ ------------
The accompanying notes are an integral part of these financial statements
F-6
PAGE
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended June 30, 1995 and 1994
1995 1994
Cash flows from financing activities:
Borrowings from bank $ 838,932 $ 3,225,023
Payments to bank (625,790) (801,303)
Proceeds from revolving lines of credit, net 1,290,433 0
Proceeds from issuance of common stock 269,399 53,198
------------ -----------
Net cash provided by financing activities 1,772,974 2,476,918
------------ -----------
Net (decrease) increase in cash and cash equivalents (340,584) 313,611
Cash and cash equivalents, beginning of year 625,421 311,810
------------ -----------
Cash and cash equivalents, end of year $ 284,837 $ 625,421
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 686,559 $ 421,798
============ ===========
Income taxes $ 380,247 $ 521,046
============ ===========
Supplemental schedule of non-cash investing and
financing activities:
Common stock issued for services and acquisition $ 0 $ 220,000
============ ===========
The accompanying notes are an integral part of these financial statements
F-7
PAGE
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
On April 29, 1994, the shareholders of MagneTech Corporation approved a
resolution to change the name of the Company to Digital Communications
Technology Corporation (the "Company"). The Company was incorporated on
November 12, 1987, under the laws of the State of Delaware, as a
wholly-owned subsidiary of S.O.I. Industries, Inc. ("S.O.I"). As of
June 30, 1995, S.O.I. owned approximately 47% of the Company.
The Company is in the business of video and audio tape production and
duplication. Sales for the years ended June 30, 1995 and 1994 were
generated from tape duplicating at the Fort Lauderdale and Indianapolis
facilities, as well as satellite broadcasting and video production.
On July 3, 1992, the Company purchased 1,000 shares (representing 100%
ownership) of Video Direct, Inc. for $342,917. The closing of this
transaction took place July 13, 1992. On July 13, 1992, Video Direct,
Inc. was merged into Video Plus, Inc., a Delaware corporation, and
became a wholly-owned subsidiary of the Company. On December 6, 1993,
the Company sold its subsidiary, Video Plus, Inc. Such sale was
accounted for as a discontinued operation (See Note 14).
On March 25, 1994, the Company finalized the purchase of Tapes
Unlimited, Inc. and Tapes Unlimited USA, Inc. Notwithstanding the
closing date, the effective date for the consummation of the
transactions was deemed to be January 1, 1994. On June 30, 1994, Tapes
Unlimited USA, Inc. was liquidated into its parent, Tapes Unlimited,
Inc. Tapes Unlimited, Inc. provides tapes loading services. On June 9,
1995, the operations of Tapes Unlimited, Inc. were discontinued (See
Note 14).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements for the years ended
June 30, 1995 and 1994 include the accounts of Digital Communications
Technology Corporation, (F/K/A MagneTech Corporation) and its
wholly-owned subsidiary, Tapes Unlimited, Inc., whose operations were
discontinued on June 9, 1995. All significant intercompany transactions
have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-8
MARKETABLE SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (FAS
115) as of June 30, 1994.
Under FAS 115, debt securities and equity securities that have readily
determinable fair values are to be classified in three categories:
HELD TO MATURITY - the positive intent and ability to hold to
maturity. Amounts are reported at amortized cost, adjusted for
amortization of premiums and accretion of discounts.
TRADING SECURITIES - bought principally for purpose of selling
them in the near term. Amounts are reported at fair value, with
unrealized gains and losses included in earnings.
AVAILABLE FOR SALE - not classified in one of the above
categories. Amounts are reported at fair value, with unrealized
gain and losses excluded from earnings and reported separately
as a component of shareholders' equity.
Marketable securities consist of listed common stocks with an aggregate
cost, based on specific identification, of $3,188,614 as of June 30,
1995. The gross unrealized holding losses as of June 30, 1995 were
$643,547, and the net unrealized holding gains were $29,558. All of the
Company's securities are classified as available for sale securities.
Gains or losses on dispositions of securities are based on the net
difference of the proceeds and the adjusted carrying amounts of the
securities sold, using the specific identification method.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
or market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the related assets, which range from 3 to 32 years. Costs of repairs
and maintenance are charged to operating expense as incurred;
improvements and betterments are capitalized; when items are retired or
otherwise disposed of, the related costs and accumulated depreciation
are removed from the accounts and any resulting gains or losses are
credited or charged to income.
F-9
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109).
As permitted, the consolidated financial statements prior to the
adoption of the new standard were not restated.
SFAS 109 changes the criteria for the recognition and measurement of
deferred tax assets and liabilities, including net operating loss and
tax credit carryovers. Deferred taxes are recorded based upon
differences between the financial statement and tax bases of assets and
liabilities and available tax credit carryovers.
NET (LOSS) INCOME PER COMMON SHARE
The net income (loss) per common share has been calculated using the
weighted average shares outstanding during each year. Such weighted
average shares have been reduced by the number of treasury shares owned
by the Company through its investment in S.O.I. The number of treasury
shares owned were approximately 659,400 and 634,700 at June 30, 1995 and
1994, respectively.
RECLASSIFICATIONS
Certain amounts reflected in the 1994 consolidated financial statements
have been reclassified to conform to the 1995 presentation.
3. INVENTORY:
Inventories consists of the following at June 30:
1995 1994
Raw materials $ 3,008,167 $ 2,693,238
Work-in-process 885,976 485,809
Finished goods 164,150 36,891
------------ -------------
$ 4,058,293 $ 3,215,938
============ =============
F-10
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
Land $ 73,000
Buildings and improvements 332,440
Machinery and equipment 7,559,667
Leasehold improvements 207,152
Furniture and fixtures 118,309
Transportation equipment 369,030
Computer equipment 181,103
Master tapes 4,000
-----------
8,844,701
Less accumulated depreciation (3,605,137)
-----------
Net property, plant and equipment $ 5,239,564
===========
Depreciation expense was $1,189,449 and $1,031,767 for the years ended
June 30, 1995 and 1994, respectively.
5. RELATED PARTY TRANSACTIONS:
LOANS RECEIVABLE
These amounts represent advances to an affiliated company ($433,105 at
June 30, 1995) and S.O.I. ($168,631 at June 30, 1995). They are due on
demand. Advances, except for advances to S.O.I., are interest bearing.
MANAGEMENT FEES
The Company paid S.O.I. $340,800 and $102,000 for administrative
services for the years ended June 30, 1995 and 1994, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company participates in S.O.I.'s Employee Stock Ownership Plan
(ESOP). This Plan provides retirement benefits to substantially all
employees. The ESOP is a qualified employee benefits plan exempt from
taxation under the Internal Revenue Code of 1986, as amended. There are
800,000 common shares of the S.O.I. in the ESOP.
NOTE PAYABLE
The Company is the guarantor of a note payable by S.O.I. in the amount
of $547,000.
F-11
6. REVOLVING LINES OF CREDIT:
The Company has a revolving line of credit agreement for aggregate
borrowings of up to $5,400,000. Interest is payable on all outstanding
cash advances at the bank's prime lending rate plus 1/4% (9.25% at June
30, 1995). Any unpaid principal and accrued interest is due on demand,
but no later than January 1996. The line of credit is collateralized by
accounts receivable, inventory, and equipment. The terms of the
agreement require, among other provisions, that the Company comply with
requirements for maintaining certain cash flow and other financial
ratios. The Company failed to meet the cash flow coverage ratio
required under this agreement.
Average short-term borrowings under this revolving credit agreement were
$3,428,135, at an average interest rate of 8.9%.
The Company also guaranteed a $900,000 line of credit for S.O.I. as well
as for an affiliate. As of June 30, 1995, $550,000 has been drawn upon
the affiliate's line of credit and $3,840,000 on the Company's line of
credit.
F-12
PAGE
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. LONG-TERM DEBT:
Long-term debt as of June 30, 1995 consists of the following:
Loan payable to a bank in monthly installments of $3,198
including interest at 8.75%, maturing April 2007; collateralized
by real estate. $ 283,585
Vehicle loans payable to a bank in monthly installments of
$548 including interest at 8.66% . These notes mature in
March 1996, and are collateralized by the corresponding
company vehicles. 4,761
Loan payable to a bank in monthly principal installments of
$7,440 plus interest at prime plus 1% (10.00% at June 30, 1995),
maturing June 1997; collateralized by accounts receivable,
inventory, and equipment. The terms of the agreement require,
among other provisions, that the Company comply with
requirements for maintaining certain cash flow and other
financial ratios. 394,351
Loans payable to a bank in monthly installments of $18,868
plus interest at prime plus 1/4% (9.25% at June 30,
1995), maturing through June 2000; collateralized by the
accounts receivables, inventory and equipment. The terms of
the agreement require, among other provisions, that the Company
comply with requirements for maintaining certain cash flow and
other financial ratios. 1,053,416
Loan payable to a bank in monthly installments of $29,000 plus
interest at prime plus 1/4% (9.25% at June 30, 1995), maturing
December 1998; collateralized by accounts receivables, inventory,
and equipment. The terms of the agreement require, among other
provisions, that the Company comply with requirements for
maintaining certain cash flow and other financial ratios. 1,224,125
Loan payable to a bank in monthly installments of $6,149
including interest at 7.63%, maturing January 2003;
collateralized by machinery and equipment; guaranteed by S.O.I. 419,324
------------
3,379,562
Less current portion (2,735,418)
------------
$ 644,144
============
F-13
7. LONG-TERM DEBT, CONTINUED:
The Company failed to meet the cash flow coverage ratio required under
the above agreements at June 30, 1995. Therefore, all amounts due under
these agreements have been reclassified to a current liabilities.
The contractual maturities on long-term debt assuming repayment terms
were not accelerated are as follows:
Years ending June 30,
---------------------
1996 $ 727,228
1997 942,565
1998 822,269
1999 304,649
2000 220,322
Thereafter 362,529
------------
$ 3,379,562
============
8. COMMITMENTS:
The Company leases its office facilities under operating leases expiring
through May 1999. The leases provide for increases based on real estate
taxes and operating expenses. The Company also leases facilities and
equipment on a month-to-month basis.
Aggregate future minimum rental payments under the above leases are as
follows:
Year ending June 30,
--------------------
1996 $ 393,335
1997 306,127
1998 297,852
1999 273,031
-----------
$ 1,270,345
===========
Rent expense under the above leases for the years ended June 30, 1995
and 1994 was $412,568 and $283,636, respectively.
9. SALES TO MAJOR CUSTOMERS:
During the year ended June 30, 1995, two customers accounted for
approximately 28% of the Company's sales. During the year ended June 30,
1994, two customers accounted for 29% of the Company's sales.
F-14
10. STOCK OPTION PLAN:
On January 22, 1990, the Board of Directors adopted the MagneTech
Corporation 1990 Employees' Stock Option Plan. As of June 30, 1995,
there were 219,125 shares reserved for future issuance at exercise
prices which range from $1.00 to $3.44 per share.
There was no compensation expense as of June 30, 1995 and compensation
expense for June 30, 1994 was $122,400.
SHARES OPTION PRICE
Outstanding June 30, 1993 211,875 $1.00 - $1.50
Granted 40,000 $1.00
Exercised (7,500) $1.50
-------- -------------
Outstanding June 30, 1994 244,375 $1.00 - $1.50
Granted 35,000 $2.25 - $3.44
Exercised (141,250) $1.00 - $1.50
-------- -------------
Canceled (15,000) $1.50
Outstanding June 30, 1995 123,125 $1.00 - $3.44
======== =============
11. INCOME TAXES:
Effective July 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes". The cumulative effect of the change amounted to $26,285
which amount is reflected as a charge to income in the consolidated
statement of operations for 1994.
The provision for income taxes is as follows:
1995 1994
Current:
Federal $ 294,762 $ 446,619
State 76,724 56,374
----------- -----------
371,486 502,993
----------- -----------
Deferred:
Federal (70,077) 20,082
State (18,242) 2,297
----------- -----------
(88,319) 22,379
----------- -----------
$ 283,167 $ 525,372
=========== ===========
F-15
11. INCOME TAXES, CONTINUED:
Reconciliations of the differences between income taxes computed at
federal statutory tax rates and consolidated provisions for income taxes
are as follows:
1995 1994
Tax at federal statutory rate 34.0 % 34.0 %
State income tax - net of federal benefit 8.8 % 2.8 %
Other (4.9) % 0
---- ----
37.9 % 36.8 %
==== ====
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows:
1995
Assets:
Allowance for doubtful accounts $ 408,061
Investments - unrealized holding losses 263,094
-----------
671,155
Liabilities:
Property and equipment - depreciation (416,453)
-----------
Net asset 254,702
Less: Valuation allowance (263,094)
-----------
Deferred tax liability $ (8,392)
===========
12. EMPLOYMENT AGREEMENTS:
The Company entered into employment agreements on July 1, 1994 with two
officers. The agreements are for a term of three years and contain
certain bonus provisions. The minimum annual salaries (excluding bonus
arrangements) for the years ending June 30, are as follows:
1996 $ 160,000
1997 160,000
-----------
$ 320,000
===========
F-16
13. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of cash and trade
receivables. The Company places substantially all its cash with major
financial institutions, and by policy, limits the amount of credit
exposure to any one financial institution. The balances, at times, may
exceed federally insured limits. At June 30, 1995, the Company exceeded
the insured limit by approximately $67,000. Approximately 40% of the
Company's accounts receivable, before allowances, were due from three
customers at June 30, 1995.
14. DISCONTINUED OPERATIONS:
In December 1993, the Company sold its subsidiary, Video Plus, Inc. The
results of operations of Video Plus, Inc. have been reported separately
as a discontinued operation in the Consolidated Statements of Operations
for the year ended June 30, 1994.
In June 1995, the Company discontinued the operations of Tapes
Unlimited, Inc. ("Tapes"). The results of operations of Tapes have been
reported separately as a discontinued operation in the Consolidated
Statements of Operations. Prior years consolidated financial statements
have been reclassified to conform with the current year presentation.
Summarized results of operations of the discontinued operations of tapes
for 1995 and 1994 are as follows:
1995 1994
Net sales $ 2,658,516 $ 1,368,863
=========== ============
Operating income (loss) $ 37,926 $ (117,519)
=========== ============
Loss before income taxes $ (561,924) $ (128,429)
Income tax benefit (240,784) (47,259)
----------- ------------
Loss from discontinued operation $ (321,140) $ (81,170)
=========== ============
F-17
14. DISCONTINUED OPERATIONS, CONTINUED:
In connection with the shutdown of operations of Tapes, the Company
recorded a charge of $443,400, net of tax of $87,237, to write-off the
goodwill recorded in connection with the acquisition of tapes. The net
income for the sale of Video Plus, Inc. for the year ended June 30, 1994
amounted to $66,735, net of tax of $38,854, which when netted against
the loss from the discontinued operation of Tapes of $81,170 amounts to
$14,475 which amount is shown in the accompanying statements of
operations under the caption loss from discontinued operations, net of
tax. The entire loss on disposal of discontinued operations of $162,164
net of tax of $94,416 relates to Video Plus, Inc.
Certain reclassifications were made to the 1994 amounts to reflect the
effects of the discontinued operation in the prior year on a basis
comparable with 1995.
The assets and liabilities of Tapes, which have not been reclassified on
the consolidated balance sheets, are as follows:
1995
Current assets, principally cash, accounts receivable and
inventories $ 133,790
Plant and equipment 3,839
-----------
Total assets $ 137,629
===========
Accounts payable and accrued liabilities, net of amounts
due to Digital of $40,700 $ 423,114
-----------
Total liabilities $ 423,114
===========
15. RESTATEMENT:
The balance of net unrealized holding losses on securities at June 30,
1994 reflected in the Consolidated Statements of Stockholders' Equity
has been restated to reflect a valuation allowance that should have been
recorded in 1994 against deferred tax assets which were recorded to
reflect the tax benefit of unrealized capital losses on marketable
securities.
In addition, the investment in S.O.I. Industries, Inc. at June 30, 1994
in the Consolidated Statements of Stockholders' Equity has been adjusted
to reflect the investment at book value. A corresponding adjustment was
made to additional paid-in-capital.
F-18
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
1995 June 30,
(Unaudited) 1995
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 401,983 $ 284,837
Marketable securities 1,874,639 2,574,626
Accounts receivable, less allowance for doubtful
accounts of $1,177,795 at December 31, 1995
and $1,065,300 at June 30, 1995 4,363,016 3,143,689
Inventories 4,205,790 4,058,293
Prepaid expenses and other current assets 182,900 345,126
------------ ------------
Total current assets 11,028,328 10,406,571
------------ ------------
Property, plant and equipment, net 5,091,426 5,239,564
Other assets 44,658 31,158
Loans receivable, related parties 453,058 601,736
------------ ------------
Total assets $ 16,617,470 $ 16,279,029
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 4,200,000 $ 3,840,000
Current portion, long-term debt 2,406,341 2,735,418
Accounts payable 1,588,782 2,165,725
Accrued liabilities 683,296 418,376
------------ ------------
Total current liabilities 8,878,419 9,159,519
------------ ------------
Long-term debt, less current portion 616,653 644,144
Deferred tax liability - 8,392
Commitments and contingencies
Stockholders' Equity:
Common stock, par value $0.0002;
25,000,000 shares authorized, 5,961,188 and
5,961,188 shares issued and 5,696,929 and
5,301,809 shares outstanding as of December 31,
1995 and June 30, 1995, respectively 1,192 1,192
Additional paid-in capital 6,567,062 6,567,062
Retained earnings 2,124,349 1,710,867
Investment in S.O.I. Industries, Inc. (1,198,158) (1,198,158)
Net unrealized holding loss on investment
securities (372,047) (613,989)
------------ ------------
Total stockholders' equity 7,122,398 6,466,974
------------ ------------
Total liabilities and stockholders' equity $ 16,617,470 $ 16,279,029
============ ============
The accompanying notes are an integral part of the financial statements
F-19
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended For the six months ended
December 31, December 31,
------------ ------------
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------ ------------ -------------
Net sales $ 7,895,511 $ 7,727,643 $ 13,281,982 $ 12,004,234
------------- ------------ ------------ -------------
Costs and Expenses:
Cost of goods sold 6,585,961 6,446,932 11,068,358 9,794,588
Selling expenses 310,573 260,251 564,152 480,920
General and administrative expenses 484,562 331,737 844,471 633,042
------------- ------------ ------------ -------------
Total costs and expenses 7,381,096 7,038,920 12,476,981 10,908,550
------------- ------------ ------------ -------------
Operating profit 514,415 688,723 805,001 1,095,684
------------- ------------ ------------ -------------
Other income (expense):
Interest and other (expense) income (33,391) 399,582 94,050 627,275
Interest expense (203,566) (166,429) (379,929) (299,762)
------------- ------------ ------------ -------------
(236,957) 233,153 (285,879) 327,513
------------- ------------ ------------ -------------
Income from continuing operations before
provision for income taxes 277,458 921,876 519,122 1,423,197
Provision for income taxes 107,436 363,070 201,000 551,770
------------- ------------ ------------ -------------
Income from continuing operations 170,022 558,806 318,122 871,427
Discontinued operations:
Income (loss) from operations of Tapes
Unlimited, Inc. net of applicable
income taxes (benefit) of $21,900,
$15,177, $60,500, and ($56,909),
respectively 36,359 30,769 95,360 (86,176)
------------- ------------ ------------ -------------
Net income $ 206,381 $ 589,575 $ 413,482 $ 785,251
============= ============ ============ =============
Weighted average shares of common
stock outstanding 5,677,443 5,291,148 5,411,957 5,238,385
============= ============ ============ =============
Earnings per share:
Continuing operations $ 0.03 $ 0.11 $ 0.06 $ 0.17
Discontinued operations 0.01 - 0.01 (0.02)
------------- ------------ ------------ -------------
Net income $ 0.04 $ 0.11 $ 0.07 $ 0.15
============= ============ ============ =============
The accompanying notes are an integral part of the financial statements
F-20
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended
December 31,
------------
1995 1994
----------- ----------
Cash flows from operating activities:
Net income $ 413,482 $ 785,251
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 605,620 586,171
Gain on sale of marketable securities (72,438) (611,299)
Increase in accounts receivable, net (1,219,327) (2,954,658)
(Increase) decrease in inventories (147,497) 178,378
Decrease (increase) in prepaid expenses
and other 162,226 (46,682)
(Decrease) increase in accounts payable (576,943) 1,531,749
Increase (decrease) in accrued liabilities
and other 264,920 (253,588)
------------ -----------
Net cash used in operating activities (569,957) (784,678)
------------ -----------
Cash flows from investing activities:
Decrease (increase) in loans receivable,
related parties 148,678 (164,775)
Change in marketable securities - available
for sale 1,014,367 (59,343)
Increase in other assets and other liabilities (21,892) (176,568)
Capital expenditures (457,482) (967,345)
------------ -----------
Net cash provided by (used in) investing
activities 683,671 (1,368,031)
------------ -----------
Cash flows from financing activities:
Net long-term (repayments) borrowings (356,568) 39,964
Net short-term borrowings 360,000 1,521,716
Payments to parent company - (105,722)
Proceeds from issuance of common stock - 142,024
------------ -----------
Net cash provided by financing
activities 3,432 1,597,982
------------ -----------
Increase (decrease) in cash and cash equivalents 117,146 (554,727)
Cash and cash equivalents at beginning of period 284,837 625,421
------------ -----------
Cash and cash equivalents at end of period $ 401,983 $ 70,694
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (non-capitalized) $ 379,550 $ 305,170
============ ===========
Income taxes $ - $ 403,463
============ ===========
The accompanying notes are an integral part of the financial statements
F-21
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________
1. Summary of Significant Accounting Policies:
-------------------------------------------
The accompanying consolidated financial statements include the accounts
of Digital Communications Technology Corporation ("the Company"). The
operations of Tapes Unlimited, Inc., which were formerly consolidated
with the operations of the Company have been segregated as discontinued
operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from these
unaudited interim financial statements. These financial statements
should be read in conjunction with the financial statements and
notes thereto included in the Company's annual audited financial
statements.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to conform with generally accepted
accounting principles. The results of operations for the periods
presented are typically subject to seasonal variations and are not
necessarily indicative of the results to be expected for the full year.
2. Marketable Securities
---------------------
Marketable securities consist of listed common stocks with an aggregate
cost, based on specific identification, of $2,246,686 as of December 31,
1995. The net unrealized holding loss as of December 31, 1995 was
$372,047. All of the Company's securities are classified as available
for sale securities.
3. Inventories:
------------
The inventories are valued at the lower of cost (first-in, first-out
method) or market and consisted of the following:
December 31, June 30,
1995 1995
----------- -----------
Raw materials $ 3,250,746 $ 3,008,167
Work-in process 839,078 885,976
Finished goods 115,966 164,150
----------- -----------
$ 4,205,790 $ 4,058,293
=========== ===========
F-22
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
-------------
4. Property, Plant and Equipment:
------------------------------
Property, plant and equipment and related accumulated depreciation are
summarized as follows:
December 31, June 30,
1995 1995
------------ -----------
Land $ 73,000 $ 73,000
Buildings and improvements 544,893 332,440
Machinery and equipment 8,684,289 8,439,261
------------ -----------
9,302,182 8,844,701
Less: accumulated depreciation 4,210,756 3,605,137
------------ -----------
$ 5,091,426 $ 5,239,564
============ ===========
5. Revolving Lines of Credit:
--------------------------
The Company has a revolving line of credit agreement for aggregate
borrowings of up to $5,400,000. Interest is payable on all outstanding
cash advances at the bank's prime lending rate plus 1/4% (9.00% at
December 31, 1995). Any unpaid principal and accrued interest is due on
demand, but no later than March 31, 1996. The line of credit is
collateralized by accounts receivable, inventory and equipment. The
terms of the agreement require, among other provisions, that the Company
comply with requirements for maintaining certain cash flow and other
financial ratios. The Company failed to meet the cash flow coverage
ratio required under this agreement.
The Company also guaranteed a $900,000 line of credit for an affiliate.
As of December 31, 1995, $600,000 has been drawn upon the affiliate's
line of credit and $4,200,000 on the Company's line of credit.
F-23
6. Long-Term Debt:
---------------
Long-term debt is summarized as follows:
December 31, June 30,
1995 1995
------------ -----------
Long-term debt consists of various
mortgages and notes payable with
interest rates ranging from 8.75 percent
to 1 percent over prime. Monthly
payments range from $954 to $29,000
and expiration dates range from
1997 through 2007. $ 3,022,994 $ 3,379,562
Less: current portion 2,406,341 2,735,418
----------- -----------
$ 616,653 $ 644,144
=========== ===========
Under the terms of certain of the above agreements, the Company is
required to comply with certain ratios and covenants. As of June 30,
1995, the Company failed to meet the cash flow coverage ratio. This
ratio is calculated on an annual basis, and therefore all amounts due
under these agreements are classified as current liabilities until the
next measurement date.
F-24
No dealer, salesman or any other person
has been authorized to give any
information or to make any representation
other than those contained in this
Prospectus in connection with the
offering herein contained, and if
given or made, such information
or representation must not be relied
upon as having been authorized by the
Company. This Prospectus does not
constitute an offer to sell any security
other than the registered securities to
which it relates, or an offer to or
solicitation of any person in any
jurisdiction in which such offer or
solicitation would be unlawful.
Neither the delivery of this Prospectus
nor any sale made hereunder shall, under
any circumstance, create an implication
that there has been no change in the
facts herein set forth since the date
hereof.
_______________________________________
TABLE OF CONTENTS
Page
Available Information 3
Risk Factors 4
The Company 8
Use of Proceeds 8
Dividend Policy 8
Price Range Common Stock 9 DIGITAL COMMUNICATIONS
Management's Discussion 10 TECHNOLOGY CORPORATION
and Analysis of
Financial Condition
Business 18 Prospectus
Description of Property 19
Directors and Officers 20
Executive Compensation 22 2,671,258 Shares
Security Ownership 25
Description Capital 26
Selling Stockholders 26
Plan of Distribution 27
Changes In and 28
Disagreements with Accountants
Experts 29
Certain Relationships 29
and Related Transactions
Disclosure of Commision 29
Position On Indemnification
Index to Financials 30
_______________________________________
55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Certificate of Incorporation of the Company provides for the
indemnification of officers, directors, agents and employees of the Company
to the fullest extent permitted by the General Corporation Law of the State
of Delaware ("Delaware Code"). Pursuant to Section 145 of the Delaware Code,
the Company generally has the power to indemnify its present and former
directors, officers, employees and agents against expenses incurred by them
in connection with any suit to which they are, or are threatened to be made,
a party by reason of their serving in such positions so long as they acted in
good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interests of the Company, and with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful.
The Company has the power to purchase and maintain insurance for such persons.
The statute also expressly provides that the power to indemnify authorized
thereby is not exclusive of any rights granted under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise.
The above discussion of the Company's Certificate of Incorporation and
of Section 145 of the Delaware Code is not intended to be exhaustive and is
qualified in its entirety by such Bylaws and the Delaware Code.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses of the offering, all of which are to be borne by
the Company, are as follows:
SEC Filing Fee $ 2,763.37
Printing Expense $ 1,000.00
Accounting Fees and Expenses $ 3,500.00
Legal Fees and Expenses $ 2,500.00
Blue Sky Fees and Expenses -0-
____________
TOTAL $ 9,763.37
Item 26. Recent Sales of Unregistered Securities
On January 27, 1994 the Board of Directors agreed to exchange additional
shares of the Company's Common Stock for common stock of S.O.I. Industries,
Inc. On February 14, 1994 the exchange of shares was made based on the
average price of the stock of both companies on January 27, 1994. The
580,538 shares of DCT's common stock that were exchanged were worth
approximately $4,574,636 and were exchanged for 1,329,836 shares of S.O.I.'s
Common Stock worth approximately $4,574,636.
The Company relied on the exemption from registration under the Securities
Act set forth in Section 4(2) thereof. No underwriters were used in
connection with the foregoing transactions.
56
Item 27. Exhibits
2.1 Certificate of Incorporation, as amended <F1>
2.2 Bylaws <F1>
10.1 Secured Credit Agreement with NBD Bank, N.A. <F2>
10.2 Employment Agreement between the Registrant and Jack D. Brown,
Jr.
10.3 Lease Agreement for Indianapolis, Indiana facility <F1>
10.4 Lease Agreement for Ft. Lauderdale facility <F1>
10.5 Employee Stock Ownership Plan of S.O.I. Industries, Inc. <F1>
15.1 Subsidiaries of the Registrant <F2>
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Morrison, Brown, Argiz & Company.
<FN>
<F1> Previously filed with the Securities and Exchange Commission in
connection with the Registration Statement (including any amendments
thereto) on Form S-18 of the Registrant, No 33-27974-A.
<F2> Previously filed with the Securities and Exchange Commission as
Exhibits to the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1994.
</FN>
57
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
58
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and has duly caused this Registartion
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Dallas, State of Texas, on the 12th of February,
1996.
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
By: /s/ Kevin B. Halter
Kevin B. Halter, CEO
POWER OF ATTORNEY
The Company and each person who signature appears below hereby designates
and appoints Kevin B. Halter and Kevin B. Halter, Jr. and each of them, as
its or his attorneys-in-fact (the "Attorneys-in-Fact") with full power to act
alone, and to execute in the name of and on behalf of the Company and each
person, individually in each capacity stated below, any additional amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as either
Attorney-in-Fact deems appropriate, and to file each such amendment to this
Registration Statement together with all exhibits thereto and any and all
documents in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature
/s/ Kevin B. Halter February 16, 1996
Kevin B. Halter, Chief Executive Officer
and Chairman
/s/ Jack D. Brown February 16, 1996
Jack D. Brown, Jr., President
/s/ Jim N. Weinberg February 16, 1996
Jim N. Weinberg, Vice-President
/s/ Douglas L. Miller February 16, 1996
Douglas L. Miller, Chief
Financial Officer (Principal
Financial and Accounting Officer),
and Vice President
59
/s/ Kevin B. Halter, Jr. February 16, 1996
Kevin B. Halter, Jr., Vice
President, Secretary and Director
/s/ Gary C. Evans February 16, 1996
Gary C. Evans, Director
/s/ James Smith February 16, 1996
James Smith, Director
60
EXHIBIT INDEX
Exhibit Sequentially
Number Numbered Page
23.1 Consent of Coopers & Lybrand L.L.P. 63
23.2 Consent of Morrison, Brown, Argiz & Co. 65
61
EXHIBIT 23.1
PAGE
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our
report, which includes an explanatory paragraph regarding restatements to the
June 30, 1994 financial statements for an adjustment to net unrealized holding
losses and an adjustment to reduce the investment in S.O.I. Industries, Inc.
to book value, dated August 25, 1995, on our audit of the consolidated
financial statements of Digital Communications Technology Corporation and
Subsidiaries. We consent to the reference to our firm under the caption
"Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Miami, Florida
February 9, 1996
63
EXHIBIT 23.2
PAGE
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the use of our report
on the Consolidated Financial Statements of Digital Communications Technology
Corporation as of June 30, 1994 and for the year then ended, and to all
references to our firm, included in or made a part of this Form SB-2.
/s/ Morrison, Brown, Argiz & Company
MORRISON, BROWN, ARGIZ & COMPANY
Miami, Florida
February 12, 1996
65