SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 - QSB/A
QUARTERLY REPORT UNDER REGULATION SB OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
June 30, 1997 2-96976-D
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DCI TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as specified in its charter)
COLORADO 84-1155041
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(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
611 Access Road, Stratford, Connecticut 06497
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(Address and zip code of principal executive offices)
(203) 380-0910
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(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
- ---------------------------- ------- ----------
9,902,994 Common Stock, August 14, 1997
$.0001 par value
DCI TELECOMMUNICATIONS, INC.
Index
PART I FINANCIAL INFORMATION
Balance Sheet June 30, 1997 3
Statements of Operations
Three Months Ended June 30, 1997 and 1996 4
Statements of Cash Flow
Three Months Ended June 30, 1997 and 1996 5
Notes to Unaudited Financial Statements
June 30, 1997 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II
Other Information 14
Signatures 16
2
DCI Telecommunications, Inc.
Consolidated Balance Sheet
(unaudited)
June 30,
ASSETS 1997
Current Assets:
Cash $1,069,519
Restricted Cash 10,500
Investments 43,575
Accounts Receivable 3,805,718
Prepaid expenses 213,466
Inventory 221,355
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Total Current Assets 5,364,133
Property and Equipment 1,332,098
Less: Accumulated depreciation 577,738
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Net property and equipment 754,360
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Accounts receivable 664,163
Deferred financing costs 139,727
Deposits 112,129
Other Assets - customer base 653,752
- costs in excess of net assets acquired 10,968,650
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11,622,402
Less: Accumulated amortization 208,767
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Net other assets 11,413,635
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Total Assets $18,448,147
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Due to Shareholders $ 388,139
Notes and settlements payable 272,365
Accounts payable and accrued expenses 4,802,867
Participations payable 1,505,604
Income Taxes Payable 194,929
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Total Current Liabilities 7,163,904
Participations payable 688,481
Long Term Debt 480,516
Deferred Income Taxes 248,202
Accrued Preferred Dividends 150,161
Redeemable, convertible preferred stock $1,000 par and
redemption value, 2,000,000 shares authorized, 1,302
shares issued and outstanding 1,302,000
Total Liabilities 10,033,264
Commitments and Contingencies
Shareholders' Equity:
9.25% cumulative convertible, preferred stock
$100 par value, 5,000,000 shares authorized,
3,972 shares issued and outstanding; 305,000
Common stock, $.0001 par value,
500,000,000 shares authorized,
8,896,824 shares issued
and outstanding 890
Paid in capital 8,130,396
Treasury Stock (13)
Unrealized Capital Loss (5,495)
Retained earnings subsequent to 12/31/95, date of
quasi-reorganization (total deficit
eliminated $4,578,587) (15,895)
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Total Shareholders' Equity 8,414,883
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Total Liabilities and Shareholders' Equity $18,448,147
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See Accompanying Notes to Consolidated Financial Statements
3
DCI Telecommunications, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended
June 30,
1997 1996
Travel Service Sales $ 298,413 $ 272,178
Product Sales 2,955,580 44,796
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Net Sales 3,253,993 316,974
Cost of Sales - Travel 281,033 244,643
Cost of Sales - Product 1,800,486 26,982
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Cost of Sales 2,081,519 271,625
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Gross Profit 1,172,474 45,349
Selling, General &
Admin. Expenses 453,261 63,156
Salaries and
Compensation 355,376 77,676
Amortization &
Depreciation 73,358 18,149
Professional and
Consulting Fees 109,079 21,869
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991,074 180,850
Income (Loss)
from Operations 181,400 (135,501)
Other Income and (Expense):
Interest Expense (32,891) (3,279)
Interest Income 11,950 94
Net Income(Loss) 160,459 (138,686)
Preferred Dividends (9,185) (9,185)
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Net Income (Loss) to Common 151,274 (147,871)
Net Income(Loss)
per common share $0.01 ($0.02)
Fully Diluted Income (Loss)
per common share $0.01 ($0.02)
Weighted average common
shares outstanding 17,469,486 6,801,389
See Accompanying Notes to Consolidated Financial Statements
4
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
June 30,
Cash Flows from Operating Activities: 1997 1996
Net Income (Loss) $160,459 ($138,686)
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Adjustment to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 73,357 18,149
Stock issued for services 800
Bad Debts 7,874
Changes in assets and liabilities:
(Increase) Decrease in:
Accounts & Contracts Receivable (221,495) 30,755
Inventory 24,915
Deposits & Prepayments (75,372) 844
Deferred Financing Costs 35,515
Increase (Decrease) in:
Accounts & Contracts Payable (367,684) (125,507)
Accrued Expenses (433,000) 645
Income taxes 35,883
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Total Adjustments: (919,207) ( 75,114)
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Net cash provided by (used in)
operating activities (758,748) (213,800)
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Cash flows from (used in) investing activities:
Additions to property,
plant & equipment ( 11,359) (11,514)
Cash acquired with acquisition 110,629
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Net cash provided by (used in)
investing activities 99,270 (11,514)
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Cash flows from (used in) financing activities:
Advances from (to)shareholders 373,979 ( 35,639)
Proceeds from sale of
stock & options 68,077 368,514
Bank overdraft (36,723)
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Net cash provided by (used in)
financing activities 442,056 296,152
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Net Increase (Decrease) in cash (217,422) 70,838
Cash, Beginning of Year 1,286,941 2,689
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Cash, End of Period $1,069,519 $ 73,527
Three Months Ended
June 30,
1997 1996
Supplemental disclosures of cash flow information:
Non cash investing and financing transactions:
Acquisition by stock issuance:
CardCall International $6,463,357
CyberFax $1,015,000
Non cash settlements $ 40,000
Preferred Stock Dividends $ 9,185 $ 9,185
See Accompanying Notes to Consolidated Financial Statements
5
DCI Telecommunications, Inc.
Notes to Unaudited Financial Statements June 30, 1997
NOTE 1.
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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 and
restatements of prior year numbers have been made to conform to the
current years presentations, to report the acquisition of The Travel
Source, Ltd. as a pooling of interest and to exclude R&D Scientific
since the merger agreement terminated.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, (CardCall International,
CyberFax Inc., Privilege Enterprises Limited and The Travel Source,
Limited) and Muller Media as if the stock purchase agreement with
Muller were completed. Material intercompany balances and
transactions have been eliminated in consolidation.
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, 1997.
Income (loss) per share was computed using the weighted average
number of common shares outstanding.
NOTE 2. CardCall International Holdings Inc.
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On March 31, 1997, DCI Telecommunications, Inc. entered into an
agreement with CardCall International Holdings, Inc. ("CardCall"), a
Delaware Corporation, to purchase all its outstanding common stock
6
(8,238,125 shares) and warrants. CardCall's board of directors had
approved the agreement on March 29, 1997, subject to shareholder
approval. CardCall is the parent company of CardCaller Canada, Inc.,
a Canadian corporation, and CardCall (UK) Limited incorporated under
the Laws of the United Kingdom.
CardCall is in the business of designing, developing and marketing,
through distributors, prepaid phone cards which provide the
cardholder access to long distance service through switching
facilities. DCI had previously invested $1,500,000 in CardCall for
which it received $1,200,000 in notes payable 120 days from demand.
The remaining $300,000 did not have any stipulated repayment terms.
By May 29, 1997, the shareholders of CardCall had approved the
transaction. For each 100 shares of common stock of CardCall held by
a shareholder, DCI will issue a warrant to purchase 9 shares of
common stock for $4.00 per share on or before February 28, 2001. In
addition, each shareholder of CardCall may acquire 85 shares of DCI
common stock under a subscription agreement for each 100 shares of
CardCall held by such shareholder, at a purchase price of $.20 per
share. As of June 30, 1997, no options for shares of DCI stock had
been exercised.
Such options expire on April 30, 2002. In accordance with the
agreement, shares of DCI stock received from the exercise of options
has restrictions on its ability to be sold ranging from September 1,
1997 to November 1, 1998.
The transaction was recorded under the purchase method of accounting,
effective April 1, 1997. The total purchase price includes
$1,500,000 in cash, $2,545,000 assigned value for the stock and stock
options, and assumption of net liabilities of $3,918,000. Goodwill
was recorded at $7,963,000. The financial statements include the
results of operations of CardCall since April 1, 1997, the effective
date of acquisition. The goodwill is being amortized over 20 years.
Revenue from the sale of prepaid phone cards is recognized upon first
usage of the card.
NOTE 3. R&D Scientific Corp.
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On June 19, 1995, DCI entered into an agreement to acquire the common
stock of R&D Scientific Corp. (R&D), a New Jersey Corporation, for
106,250 shares (to be adjusted on or before December 31, 1997 for a
value of $1,700,000).
The Company had included R&D operations as part of the consolidated
group since June 19, 1995 as if the acquisition has been completed
under the purchase method of accounting. In the quarter ending
7
December 31, 1997, the parties mutually agreed to terminate the
agreement, with R&D reverting back to its original owners. As a
result, no operations of R&D are included in the financial
statements, and all prior periods have been restated to exclude the
operations of R&D.
NOTE 4. Acquisition of Muller Media, Inc.
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On November 26, 1996, DCI entered into a stock purchase agreement
with Muller Media, Inc. (Muller), a New York corporation, to acquire
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
capital stock. The DCI stock was valued at two dollars and fifty
cents ($2.50) per share ($3 million in total).
The shares of both companies have been deposited with an escrow
agent. DCI must 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 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. An
extension was granted by Muller through December 31, 1997. 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 5. CyberFax
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On April 9, 1997 the Company acquired all of the outstanding shares
of CyberFax, Inc. for 400,000 shares of its common stock valued at
$1,015,000. Goodwill of $1,015,000 was recognized in this transaction
and is being amortized over 20 years. The acquisition has been
accounted for as a purchase. The financial statements include the
results of operations of CyberFax since April 9, 1997, the date of
acquisition.
NOTE 6. Common and Preferred Stock
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During the three months ended June 30, 1997, the holders of 198
8
shares of Series C Convertible Preferred Stock elected to convert
into common shares, resulting in the issue of 115,126 common shares.
In addition, options to purchase 370,000 common shares were exercised
during the quarter.
NOTE 7. Unaudited Pro Forma Results
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The following table summarizes unaudited pro forma results of
operations of the Company for the 3 months ended June 30, 1997 and
1996, assuming the acquisition of CardCall, CyberFax, Muller Media,
Travel Source and PEL had occurred on April 1, 1996. The unaudited
pro forma financial information presented is not necessarily
indicative of the results of operations that would have occurred had
the acquisitions taken place on April 1, 1996 or of future results of
operations.
June 30,
1997 1996
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Net Sales $3,253,993 $2,684,517
Net Income (Loss) 151,274 (1,152,880)
Net Income (Loss) per Share $0.01 ($0.07)
9
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
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The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of
DCI Telecommunications, Inc. and its subsidiaries (collectively, the
Company), consolidated results of operations and financial condition
for the three months ended June 30, 1997. The discussion should be
read in conjunction with the Company's consolidated financial
statements and accompanying notes.
The Company, since its recent acquisitions, operates predominantly in
the telecommunications industry providing a broad range of
communication service. The Company's services include long distance,
cellular as well as Internet connections. Through continued
investments and fiscal 1997 business acquisitions, the Company has
expanded its business into rapidly developing markets.
Recent Acquisitions
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The acquisition of CardCall International and CyberFax in the quarter
ended June 30, 1997 were accounted for under the purchase method of
accounting under both U.S. and United Kingdom generally accepted
accounting principles. The Company believes that CardCall
International, operating with the combined networks, financial
resources, management, personnel and technical expertise of the
Company, CyberFax and DCI UK Limited, will be better able to
capitalize on the world wide growth opportunities in the
telecommunications industry. In addition, the Company expects these
companies will be able to derive significant advantages from the more
efficient utilization of their combined assets, management and
personnel.
10
Liquidity and Capital Resources
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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 International, Inc. at acquisition left the
Company with negative working capital and little financing
capability. In November 1996 the Company acquired Muller Media
through the issue of common stock. The acquisition greatly improved
the Company's financial position and at March 31, 1997 the current
ratio was a positive 1.9 to 1 and cash on hand was $1,300,000.
However, with the acquisition of CardCall International in the
quarter ended June 30, 1997, the Company's current ratio dropped to a
negative position.
Cash used in operations was $758,000 in the three months ended June
30, 1997. The Company was able to partially overcome this shortfall
by proceeds from the exercise of stock options, and advances from
stockholders totaling $442,000.
While CyberFax had limited operations during the quarter, it has
secured nine contracts in four countries for its real time fax to fax
transmission packages. CardCall UK is expanding its distribution
network to vending machines and CardCaller Canada is embarking on a
prepaid cellular phone program. All of these programs will require
significant cash to finance the expansion plans.
The Company is continuing to pursue long-term financing for its
acquisition and expansion program. However, no assurance can be given
that additional financing will be available or, if available, that it
will be on acceptable terms. The ability to finance all new and
existing operations will be heavily dependent on external sources.
Results of Operations - Three Months Ended June 30,1997 Compared
to Three Months Ended June 30, 1996
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1997 1996
---- ----
Net Sales $3,253,993 $ 316,974
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Net sales in the 1997 first quarter increased $2,937,019 over the
11
1996 first quarter. Sales of newly acquired CardCall of $2,132,319
and sales of Muller Media (acquired November 1996) of $720,483
principally accounts for the variance.
1997 1996
---- ----
Cost of Sales $2,081,519 $ 271,625
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Cost of sales in the three months ended June 30, 1997 increased
$1,809,894 over the comparable 1996 period. CardCall cost of sales
accounted for $1,326,800 and Muller $415,300. Neither company was
part of the group in the 1996 first quarter.
1997 1996
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Selling, General & Administrative $ 453,261 $ 63,156
- ---------------------------------
SG&A expense increased $390,105 in the 1997 first quarter. Of the
increase, CardCall accounted for $168,285 and Muller for $140,672. In
addition, CyberFax, which was acquired April 9, 1997, contributed
$64,000 to the variance.
1997 1996
---- ----
Salaries $ 355,376 $ 77,676
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Salaries in the 1997 first quarter increased $277,700 over the 1996
first quarter. Salaries of newly acquired CardCall of $214,935 and
Muller Media salaries of $99,228 principally account for the
variance.
1997 1996
---- ----
Amortization & Depreciation $ 73,358 $ 18,149
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1997 first quarter expense increased $55,209. Amortization and
depreciation associated with the three new acquisitions noted above
account for $42,489, with the balance due to depreciation on
equipment additions at the parent company level.
12
1997 1996
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Professional and Consulting Fees $ 109,079 $ 21,869
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Professional fees increased $87,210 in the 1997 period. The three new
acquisitions account for $52,788, while the remaining balance is
attributable to higher legal and accounting fees at the parent
company due to the company's growth.
1997 1996
---- ----
Interest (Expense) ($ 32,891) ($ 3,279)
Interest Income 11,950 94
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The increase in interest expense is all associated with newly
acquired CardCall and the increase in interest income is all from
interest earned on Muller investments. Neither company was included
in 1996 results.
13
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 15
14
ITEM 6 - Exhibits and Reports on Form 8K
On April 18, 1997 the Company filed a Form 8K which described the
acquisition of CyberFax Inc.
15
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: May 14, 1998 By: Joseph J. Murphy
----------------
Joseph J. Murphy
President
By: Russell B. Hintz
----------------
Russell B. Hintz
Chief Financial Officer
16