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:
September 30, 1997 2-96976-D
- ----------------------- ------------------
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
-------------------------------------------------------------
(Address and zip code of principal executive offices)
(203) 380-0910
-----------------
(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
- ---------------------------- ------- ----------
13,160,402 Common Stock, November 13, 1997
$.0001 par value
DCI TELECOMMUNICATIONS, INC.
Index
PART I FINANCIAL INFORMATION
Balance Sheet September 30, 1997 3
Statements of Operations
Three and Six Months Ended September 30, 1997 and 1996 4
Statements of Cash Flow
Six Months Ended September 30, 1997 and 1996 5
Notes to Unaudited Financial Statements
September 30, 1997 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II
Other Information 15
Signatures 17
2
DCI Telecommunications, Inc.
Consolidated Balance Sheet
(unaudited)
September 30,
ASSETS 1997
Current Assets:
Cash $1,296,919
Restricted Cash 10,500
Investments 43,575
Accounts Receivable 3,578,229
Prepaid expenses 87,762
Inventory 184,145
---------
Total Current Assets 5,201,130
Property and Equipment 1,115,220
Less: Accumulated depreciation 665,875
---------
Net property and equipment 449,345
---------
Accounts receivable 419,447
Deposits 24,288
Other Assets - costs in excess of net assets acquired 11,210,342
Less: Accumulated amortization 72,000
---------
Net other assets 11,138,342
---------
Total Assets $17,232,552
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Loans from Shareholders $ 285,286
Notes and settlements payable 35,207
Accounts payable and accrued expenses 4,613,350
Participations payable 1,596,332
Income Taxes Payable 63,792
----------
Total Current Liabilities 6,593,967
Participations payable 304,000
Long Term Debt 459,658
Deferred Income Taxes 386,835
Accrued Preferred Dividends 166,014
Redeemable, convertible preferred stock $1,000 par and
redemption value, 2,000,000 shares authorized, 1,760
shares issued and outstanding 1,760,000
Total Liabilities 9,670,474
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,
10,864,722 shares issued and outstanding 1,086
Paid in capital 9,065,896
Treasury Stock (13)
Unrealized Capital Loss (5,493)
Retained earnings subsequent to 12/31/95, date of
quasi-reorganization (total deficit
eliminated $4,578,587) (1,804,398)
---------
Total Shareholders' Equity 7,562,078
---------
Total Liabilities and Shareholders' Equity $17,232,552
-----------
See Accompanying Notes to Consolidated Financial Statements
3
DCI Telecommunications, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
Travel Service Sales $ 280,987 $ 272,178 $ 579,400 $ 544,356
Product Sales 1,596,005 15,489 3,722,813 14,528
---------- ---------- ---------- ----------
Net Sales 1,876,992 287,667 4,302,213 558,884
Cost of Sales - Travel 240,758 244,643 521,791 489,286
Cost of Sales - Product 1,547,735 22,222 3,126,305 33,371
---------- ---------- ---------- ----------
Cost of Sales 1,788,493 266,865 3,648,096 522,657
---------- --------- --------- ----------
Gross Profit 88,499 20,802 654,117 36,227
Selling, General &
Admin. Expenses 255,578 9,047 625,575 61,350
Salaries and
Compensation 474,937 84,380 662,826 162,056
Amortization &
Depreciation 8,914 2,306 70,874 4,111
Professional and
Consulting Fees 168,092 46,858 266,677 67,630
--------- -------- --------- ----------
907,521 142,591 1,625,952 295,147
Income (Loss)
from Operations (819,022) (121,789) ( 971,835) (258,920)
Other Income and (Expense):
Interest Expense (37,758) 188 (63,340) ( 3,091)
Interest Income 180,230 (94) 192,180 --
--------- ---------- --------- ---------
142,472 94 128,840 ( 3,091)
Net (Loss) - Continuing
Operations (676,550) (121,695) (842,995) (262,011)
Loss from discontinued computer
board operations (526,178) 10,933 (558,958) 12,563
Discontinued prepaid phone
card segment - U.K. (585,775) -- (226,091) --
Net Income (Loss) (1,788,503) (110,762)(1,628,044)(249,448)
Preferred Dividends 195,352 9,185 204,538 18,371
(Loss) applicable to
common shareholders (1,983,855) (119,947)(1,832,582) (267,819)
Net (Loss)
per common share ($0.11) ($0.02) ($0.10) ($0.04)
Fully diluted Net
(Loss) per share ($0.11) ($0.02) ($0.10) ($0.04)
Weighted average common
shares outstanding 18,657,278 7,177,308 17,841,632 6,901,848
See Accompanying Notes to Consolidated Financial Statements
4
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
September 30,
Cash Flows from Operating Activities: 1997 1996
Net Income (Loss)from operations ($ 842,995) ($262,011)
Loss from discontinued computer
board operations (558,958) 12,563
Loss from discontinued prepaid phone
card segment - UK (226,091)
--------- ----------
Net (Loss) (1,628,044) (249,448)
Adjustment to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Unamortized customer base 492,985
Depreciation and amortization 169,146 36,799
Stock issued for services 800 10,335
Non-cash settlements (43,235)
Bad Debts 9,211
Changes in assets and liabilities:
(Increase) Decrease in:
Accounts & Contracts Receivable 277,307 (10,215)
Inventory 61,767 (277)
Deposits & Prepayments (38,783) (1,484)
Increase (Decrease) in:
Accounts & Contracts Payable (1,227,593) ( 89,073)
Income taxes 43,379
-------- --------
Total Adjustments (211,781) ( 97,150)
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Net cash provided by (used in)
operating activities (1,839,825) (346,598)
-------- --------
Cash flows from (used in) investing activities:
Additions to property,
plant & equipment (3,924) (15,956)
Cash acquired with acquisition 110,259
Acquisition costs (15,735)
-------- --------
Net cash provided by (used in)
investing activities 90,600 (15,956)
-------- --------
Cash flows from (used in) financing activities:
Advances from (to)shareholders 370,696 ( 57,991)
Proceeds from sale of
stock & options 1,388,507 505,024
Bank overdraft (42,004)
Payment of notes payable (22,973)
-------- --------
Net cash provided by (used in)
financing activities 1,759,203 382,056
-------- --------
Net Increase (Decrease) in cash 9,978 19,502
Cash, Beginning of Year 1,286,941 2,689
--------- --------
Cash, End of Period $1,296,919 $ 22,191
Six Months Ended
September 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 $ 151,900
Stock subscriptions receivable $ 58,384
Preferred stock dividends $204,538 $ 18,371
See Accompanying Notes to Consolidated Financial Statements
5
DCI Telecommunications, Inc.
Notes to Unaudited Financial Statements September 30, 1997
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 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, DCI UK
Limited, 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. Acquisition of 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 (8,238,125
shares) and warrants. CardCall's board of directors had approved the
agreement on March 29,1997, subject to shareholder approval.
6
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 September
30, 1997, options for 223,500 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 the $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. See Note 3 for explanation of
sale of a distribution contract of CardCall (UK) and discontinuation of a
portion of the operations. Revenues from the sale of prepaid phone cards
is recognized upon first usage of the card.
NOTE 3. Subsequent Event- Sale of Distribution Contract
- --------------------------------------------------------
In September, 1997, DCI Telecommunications, Inc. agreed in principal with
SmarTalk Teleservices, Inc. to sell its prepaid phone card distribution
contract with D Services, a wholly owned subsidiary of W.H. Smith, for
$9,000,000. DCI received $1,000,000 in cash at the closing and shares of
SmarTalk common stock worth $8,000,000 based on the price of SmarTalk
stock on the closing date. SmarTalk has agreed to file a registration
statement to register these shares upon request by DCI at any time after
March 30, 1998.
7
A non-compete clause in the agreement will preclude DCI or its
subsidiaries from engaging in the prepaid phone card products business
through the distributor for a period of seven years. As a result,
operations to date for CardCall UK are shown as discontinued operations.
Operations of CardCaller Canada are shown as continuing operations.
The gain of the transaction is expected to be $3,078,421, after the write-
off of goodwill associated with the CardCall acquisition, and will be
recorded in the financial statements for the period ending December 31,
1997.
NOTE 4. Discontinuance of Computer Board Division
- --------------------------------------------------
In the second quarter ended September 30, 1997 the Company discontinued
the operation of its division that assembled computer boards that were
sold to a number of industries including education and government. In
conjunction with this event, unamortized customer base totaling $492,985
was written off and operating losses through September 30, 1997 of
$65,973 are shown as discontinued operations.
NOTE 5. R&D Scientific Corporation
- -----------------------------------
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 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 6. Acquisition of Muller Media, Inc.
- ------------------------------------------
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).
8
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 7. CyberFax
- -----------------
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 operation
since April 9, 1997, the date of acquisition.
NOTE 8. Common and Preferred Stock
- -----------------------------------
During the six months ended September 30, 1997, the holders of 1190
shares of Series C Convertible Preferred Stock elected to convert into
common shares, resulting in the issue of 962,077 common shares. In
addition, options to purchase 590,000 common shares were exercised.
During the first six months the Company has raised approximately
$1,500,000 through the sale of its Convertible Preferred Stock.
NOTE 9. Unaudited Pro Forma Results
- ------------------------------------
The following table summarizes unaudited pro forma results of operations
of the Company for the 6 months ended September 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.
9
September 30,
1997 1996
---- ----
Net Sales $4,302,213 $3,844,279
Net Income (Loss) -
Continuing Operations (842,995) (824,866)
Discontinued Operations (785,049) (2,185,735)
---------- ----------
Net (Loss) (1,628,044) (3,010,601)
Net (Loss) per Share ($0.09) ($0.19)
10
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
- --------
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 six months ended September 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, prepaid
phone cards as well as real-time fax over the Internet. Through continued
investments and fiscal 1997 business acquisitions, the Company has
expanded its business into rapidly developing markets.
Recent Acquisitions
- -------------------
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,
CyberFax and DCI UK Limited, operating with the combined networks,
financial resources, management, personnel and technical expertise of the
Company, 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.
11
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 International, Inc. at acquisition left the Company with
negative working capital and little financing capability. In June 1995
the Company acquired R&D Scientific and in November 1996 acquired Muller
Media, both through the issue of common stock. The acquisitions,
particularly Muller Media, 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.
A recent significant event was the sale of the prepaid phone card
distribution contract in the United Kingdom to SmarTalk Teleservices,
Inc., a U.S. company trading on NASDAQ, for $1,000,000 in cash and
$8,000,000 in SmarTalk common stock. The stock will be registered upon
DCI's request six months from the closing. The gain will be booked in the
quarter ended December 31, 1997 The proceeds will be a significant
benefit to liquidity in the future. Due to a non-compete clause in the
sales contract, CardCall UK has discontinued its phone card sales through
W.H. Smith in the UK. Since CardCall UK was a net user of cash, it is
expected that this will not have a negative impact on liquidity.
Cash used in operations was $1,800,000 in the six months ended September
30, 1997. The Company was able to overcome this shortfall by proceeds
from the sale of preferred stock of $1,400,000, and advances from
stockholders totaling approximately $400,000.
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. Privilege Enterprises 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.
12
Results of Operations - Six Months Ended September 30, 1997 Compared
to Six Months Ended September 30, 1996
- --------------------------------------------------------------------
1997 1996
---- ----
Net Sales $4,302,213 $ 558,884
- ---------
Net sales in the 1997 first six months increased $3,743,329 over the 1996
first six months. Sales of newly acquired CardCaller Canada of $2,642,926
and sales of Muller Media (acquired November 1996) of $971,482
principally account for the variance.
1997 1996
---- ----
Cost of Sales $3,648,096 $ 522,657
- -------------
Cost of sales in the six months ended September 30, 1997 increased
$3,125,439 over the comparable 1996 period. CardCaller Canada cost of
sales accounted for $2,272,272 and Muller $646,650. Neither company was
part of group in the 1996 first six months. PEL and Travel Source also
had increased costs associated with increased sales.
1997 1996
---- ----
Selling, General & Administrative $ 625,575 $ 61,350
- ---------------------------------
SG&A expense increased $564,225 in the 1997 first six months. Of the
increase, CardCaller Canada accounted for $155,578 and Muller for
$185,064. In addition, CyberFax, PEL and DCI UK are in start-up ventures,
and combined contributed $164,283 to the increase. None of these five
companies were included in the 1996 results.
1997 1996
---- ----
Salaries $ 662,826 $ 162,056
- --------
Salaries in the 1997 first half increased $500,770 over the 1996 first
half. Salaries of newly acquired CardCaller Canada of $100,284 and Muller
of $199,376. Salaries of the start-up ventures for CyberFax, DCI UK and
PEL contributed $206,279 to the variance.
13
1997 1996
---- ----
Amortization & Depreciation $ 70,874 $ 4,111
- ---------------------------
1997 first six month expense increased $66,763. Amortization and
depreciation associated with the Muller and CardCaller Canada
acquisitions account for virtually the entire increase.
1997 1996
---- ----
Professional & Consulting Fees $ 266,677 $ 67,630
- ------------------------------
Professional fees rose $199,047 in the first six months of 1997 compared
to 1996. Legal, accounting and professional fees of the companies
acquired in the 1997 fiscal year (not included in 1996) amounted to
$96,582. In addition, legal, accounting and corporate relations fees
increased $105,758 at the parent company primarily due to the Company's
growth.
1997 1996
---- ----
Interest Expense ($ 63,340) ($ 3,091)
Interest Income 192,180 --
- ----------------
The $60,249 increase in interest expense is virtually all associated with
CardCaller Canada which was not included in 1996 results. The $192,180
increase in interest income is virtually all associated with interest
earned on Muller Media investments, which also was not included in 1996
results.
1997 1996
---- ----
Discontinued Computer Board Operations ($ 558,958) $ 12,563
- --------------------------------------
Effective September 30, 1997 the Company discontinued operations of its
Alpha Products division. The 1997 loss consists of $65,973 operating loss
to date and a $492,985 write off of unamortized customer base associated
with Alpha. 1996 represents the year to date profit from Alpha.
1997 1996
---- ----
Discontinued Prepaid Phone Card Segment ($ 226,091) --
- ---------------------------------------
This represent operating losses to date and shutdown costs for the U.K.
phone card segment due to the non compete clause in the contract to sell
the distribution contract. (See Note 3 to Financial Statements)
14
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 16.
15
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.
On September 23, 1997 the Company filed a Form 8K which described the
acquisition of CardCall International Holdings.
On October 20, 1997 the Company filed a Form 8K which described the
change in independent accountants.
On November 4, 1997 the Company filed a Form 8K which described the sale
of CardCall UK's distribution contract to SmarTalk.
16
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
17