SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT UNDER REGULATION SB OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
December 31, 1996 2-96976-D
- ----------------------- ------------------
DCI TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as specified in its charter)
COLORADO 84-1155041
--------------- -----------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
303 Linwood Avenue, Fairfield, Connecticut 06430
-------------------------------------------------------------
(Address and zip code of principal executive offices)
(203) 259-7713
-----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required by Regulation SB of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to the filing requirements for at least the past 90 days.
YES __X__ NO_____
Indicate the number of shares outstanding of each of the issuer/s
classes of common stock, as of the last practicable date:
Number of Shares Outstanding Class Date
- ---------------------------- ------- ----------
7,380,281 Common Stock, February 13, 1997
$.0001 par value
DCI TELECOMMUNICATIONS, INC.
Index
PART I FINANCIAL INFORMATION
Balance Sheet December 31, 1996 3
Statements of Operations
Nine Months Ended December 31, 1996 and 1995 4
Statements of Cash Flow
Nine Months Ended December 31, 1996 and 1995 5
Notes to Unaudited Financial Statements
December 31, 1996 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II
Other Information 11
Signatures 13
2
DCI Telecommunications, Inc.
Consolidated Balance Sheet
(unaudited)
December 31,
ASSETS 1996
Current Assets:
Cash $1,170,827
Accounts Receivable - trade 2,694,052
-shareholders 253,803
Deposits and Prepayments 52,828
Inventory 25,618
Total Current Assets 4,197,128
Property and Equipment 384,705
Less: Accumulated depreciation 97,062
Net property and equipment 287,643
Contracts receivable - Non-Current 1,027,361
Other Assets - copyrights 1,700,000
- customer base 653,752
- goodwill 1,706,265
4,060,017
Less: Accumulated amortization 368,079
Net other assets 3,691,938
Total Assets $9,204,070
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Contracts Payable $1,517,181
Notes and settlements payable 33,995
Accounts payable 268,517
Accrued expenses 7,599
Income Taxes Payable 183,039
Total Current Liabilities 2,010,331
Contracts Payable - Long Term 1,204,290
Long Term Debt 167,404
Deferred Income Taxes 100,620
Commitments and Contingencies
Shareholders' Equity:
9.25% cumulative convertible, preferred stock
$100 par value, 9,000,000 shares authorized,
30,298 shares issued and outstanding; 305,000
Common stock, $.0001 par value,
500,000,000 shares authorized,
6,571,174 shares issued
and outstanding 657
Paid in capital 5,866,887
Subscriptions for common stock 69,800
Stock subscriptions receivable (42,384)
Treasury Stock (29)
Retained earnings (Deficit) (since 12/31/95) (478,506)
Total Shareholders' Equity 5,721,425
Total Liabilities and Shareholders' Equity $9,204,070
See Accompanying Notes to Consolidated Financial Statements
3
DCI Telecommunications, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
Net Sales $395,352 $245,841 $901,061 $632,368
Cost of Sales 169,454 167,249 466,995 350,729
Gross Profit 225,898 78,592 434,066 281,639
Selling, General &
Admin. Expenses 27,389 (20,576) 171,648 163,477
Salaries and
Compensation 139,979 93,339 323,535 310,291
Amortization &
Depreciation 62,958 (59,469) 186,801 134,361
Professional Fees 33,625 (31,229) 87,620 26,087
Consulting Fees 16,087 150,683 32,557 241,163
280,038 132,748 802,161 875,379
Income (Loss)
from Operations (54,140) (54,156) (368,095) (593,740)
Other Income and (Expense):
Interest Expense (3,906) (5,601) ( 14,742) (19,492)
Interest Income 8,749 -- 8,749 --
Net (Loss) ($49,297) ($59,757) ($374,088) ($613,232)
Net (loss)
per common share ($0.01) ($0.03) ($0.10) ($0.32)
Weighted average common
shares outstanding 4,742,045 1,998,662 3,701,808 1,944,396
See Accompanying Notes to Consolidated Financial Statements
4
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
December 31,
Cash Flows from Operating Activities: 1996 1995
Net Loss ($374,088) ($613,232)
Adjustment to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 186,896 134,361
Stock issued for services 10,335 402,995
Deferred compensation -- 97,650
Non cash settlements (150,143) (92,231)
Accrued interest -- 5,600
Changes in assets and liabilities:
(Increase) Decrease in:
Accounts & Contracts Receivable 49,242 (6,641)
Inventory 1,551 6,732
Deposits & Prepayments (23,543) 8,830
Increase (Decrease) in:
Accounts & Contracts Payable (242,580) 108,026
Accrued Expenses (901) (4,682)
Income taxes (21,250) --
Total Adjustments: (190,393) 660,640
Net cash provided by (used in)
operating activities (564,481) 47,408
Cash flows from (used in) investing activities:
Additions to property,
plant & equipment (135,197) (3,145)
Cash acquired with acquisition 922,687 10,405
787,490 7,260
Cash flows from (used in) financing activities:
Accounts Receivable shareholders (83,400) (195,649)
Proceeds from sale of stock 981,816 140,000
Bank overdraft (42,004) (6,880)
Payment of notes payable (22,738) (9,046)
Note Payable - property 84,624 --
Note payable - affiliate -- 24,247
Net cash provided by (used in)
financing activities 918,298 (47,328)
Net Increase (Decrease) in cash 1,141,307 7,340
Cash, Beginning of Year 29,520 --
Cash, End of Period $1,170,827 $7,340
Nine Months Ended
December 31,
1996 1995
Supplemental disclosures of cash flow information:
Non cash investing and financing transactions:
Acquisition by stock issuance:
R&D Scientific $1,700,000
Muller Media $3,000,000
Bettencourt & Associates $10,345
Stock subscriptions receivable $ 42,384
Non cash settlements $151,900
See Accompanying Notes to Consolidated Financial Statements
5
DCI Telecommunications, Inc.
Notes to Unaudited Financial Statements December 31, 1996
NOTE 1.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the provisions of Regulation SB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for
a fair presentation have been included. Certain reclassification of
prior year numbers have been made to conform to the current years
presentations.
The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full
year. The accompanying financial statements should be read in
conjunction with the Company's form 10-K filed for the year ended
March 31, 1996.
Income (loss) per share was computed using the weighted average
number of common shares outstanding.
NOTE 2. Acquisition of R&D Scientific Corp.
On June 19, 1995, the Company entered into an agreement to acquire
the common stock of R&D Scientific Corporation ("R&D") in a stock for
stock purchase, with the Company exchanging 106,250 shares for all of
R&D's outstanding stock. The stock of both companies is being held in
escrow pending certain cash infusion requirements. During the quarter
ending December 31, 1996, the Company was granted an extension until
December 31, 1997 to make the cash infusion of $150,000 in order to
consummate the transaction with R&D. As of December 31, 1996, $50,000
was sent to R&D by DCI in connection with this agreement. In
consideration for the extension, R&D has the right to terminate the
purchase and sale contract at its sole discretion prior to DCI making
the cash infusion.
NOTE 3. Acquisition of Muller Media, Inc.
On November 26, 1996, DCI Telecommunications, Inc. entered into a
stock purchase agreement with Muller Media, Inc. (Muller), a New York
6
corporation whereby DCI acquired 100% of the outstanding common stock
of Muller in a stock for stock purchase, with DCI exchanging one
million two hundred thousand (1,200,000) shares of common stock for
all of the shares of Muller Media capital stock. The DCI stock was
valued at two dollars and fifty cents ($2.50) per share.
The shares of both companies have been deposited with an escrow
agent. DCI can repurchase the shares, if Muller exercises a "put"
option which commences on the earlier of 120 days from December 27,
1996, unless an extension is requested by DCI, which Muller Media
cannot unreasonably withhold, or 14 days after DCI has received an
aggregate of $3,000,000 in net proceeds from the sale of its capital
stock. The selling stockholders have an option to keep DCI stock or
accept up to $3,000,000 in cash from DCI. Muller is a distributor of
syndicated programming and motion pictures to the television and
cable industry. The acquisition has been accounted for as a purchase.
NOTE 4. Acquisition of Paul Bettencourt Associates
On November 5, 1996, DCI acquired the assets of Paul Bettencourt
Associates in exchange for DCI stock valued at approximately $10,000.
Bettencourt has been renamed Privilege Enterprises Limited (PEL) and
Paul Bettencourt will serve as President of PEL. PEL is in the
business of value added card based and other marketing programs.
NOTE 5. Common Stock
During the nine months ending December 31, 1996 , the Company issued
2,805,441 shares of its common stock under a Regulation D, 504
offering, raising over $947,000 in cash.
Also, 1,450,000 options to purchase common stock at an exercise price
of $.1875 were issued to employees with exercise dates commencing
June 21, 1996 through November 1, 1996. At December 31, 460,000
shares had been exercised.
7
NOTE 6. Pro-forma Financial Information
The following pro-forma information is presented as if the
acquisition of Muller Media had taken place on April 1 of the
respective years:
(unaudited)
Three Months Ended Nine Months Ended
December 31 December 31
1996 1995 1996 1995
Net Sales $1,196,292 $557,151 $4,558,769 $1,526,108
Income (loss)
from Operations 37,175 (90,758) 20,854 (799,205)
Net Income (loss) 49,434 (64,237) 44,532 (731,473)
Net Income (loss)
per share $.01 ($.02) $.01 ($.23)
NOTE 7. Subsequent Event
On February 4, 1996, DCI signed a letter of intent to acquire all of
the outstanding stock of CardCall International Holdings, Inc. a
Delaware corporation. It is anticipated that this will be a tax
deferred transaction and will involve the exchange of common stock.
The acquisition will be subject to several conditions including
execution of a definitive acquisition agreement and approval of the
Boards of Directors.
CardCall, which has subsidiaries in Canada and the United Kingdom, is
a telecommunications software and hardware development company
specializing in the manufacture and distribution of prepaid telephone
cards and had sales in excess of $4,000,000 in its latest fiscal
year.
A March 1997 closing is planned.
8
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
On December 30, 1994 and January 5, 1995 the Company acquired the
assets of Sigma Telecommunications and Alpha Products through the
issue of 1,330,000 shares of common stock, and renamed the Company
DCI Telecommunications, Inc. The liabilities remaining from the
former Fantastic Foods, Inc. at acquisition left the Company with
negative working capital.
Net cash used in operating activities for the nine months ended
December 31, 1996 totaled $564,000. The Company raised $981,000 by the
private sale of stock which more than covered this cash shortfall.
During the most recent quarter, the Company acquired Muller Media in
a stock for stock purchase. Largely as a result of this acquisition,
at December 31, 1996, the Company had cash of $1,170,000 and positive
working capital of $2,187,000.
The Company continues to pursue long-term financing for its
acquisition program and internal expansion. However, no assurance can
be given that additional financing will be available or, if
available, that it will be available on acceptable terms. The
ability to finance and expand all operations will be heavily
dependent on external sources.
Results of Operations
Nine Months Ended
December 31,
1996 1995
Sales $901,061 $632,368
Net sales increased in the 1996 first nine months by approximately
$269,000 compared to the prior year first nine months almost entirely
due to sales of Muller Media which was acquired during the most
recent quarter.
1996 1995
Cost of Sales $466,995 $350,729
Cost of sales increased $116,000 in the 1996 first nine months due to
increased subcontractor costs and more salaries were allocated to
9
cost of sales in 1996. In addition, Muller Media costs since its
acquisition also contributed to the rise.
1996 1995
Selling, General
& Admin. $171,648 $163,477
S.G.&A. expense increased $8,000 in 1996 compared to the nine months
ending December 31, 1995. Higher costs associated with Muller Media
were almost offset by lower director fees.
1996 1995
Salaries & Compensation $323,535 $310,291
Higher salaries in 1996 including the addition of Muller Media
employees are partially offset by more payroll being allocated to
cost of sales.
1996 1995
Amortization & Depreciation $186,801 $134,361
Amortization in the 1996 first nine months included three quarters
amortization of R&D copyrights of $127,500 while the 1995 nine months
has amortization of R&D Scientific copyrights of $75,000 (two
quarters), resulting in a $52,000 increase.
1996 1995
Professional Fees $ 87,620 $26,087
Professional fees increased $61,533 in the 1996 period due to more
legal costs associated with settlements of old obligations.
1996 1995
Consulting Fees $32,557 $241,163
Consulting fees declined approximately $209,000 during the current
year due to much less reliance on outside help on corporate matters
and getting the Company established.
1996 1995
Interest Expense $ 14,742 $ 19,492
The reduction in interest expense in the current nine months is
principally due to paydown and settlement of notes partially offset
by interest on the R&D Scientific mortgage which was only partially
included in the 1995 nine months.
10
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Page 12.
11
ITEM 6 - Exhibits and Reports on Form 8-K
On January 7, 1997 the Company filed a Form 8-K which described the
acquisition of Muller Media Inc. This included the purchase and sale
agreement and financial statements of Muller Media.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DCI TELECOMMUNICATIONS, INC.
(Registrant)
Dated: February 14, 1997 By: Joseph J. Murphy
Joseph J. Murphy
President
By: Larry Shatsoff
Larry Shatsoff
Acting Secretary
13